October 2013

ISSN 1179 -4275

In this IssueDon’t like that Profit? - Choose this!  1Auckland Education Courses  32013 Conference Reports - Taking New Zealand to the world  4Structural change in the Listed Property Sector  8Board Report for September  9Company Meetings  Rakon  10Northland Port Corporation - Talk about Governance!  11Dorchester Pacific  12Smiths City  13Infratil  14Moa Group  14Pacific Edge  16PGG Wrightson’s Roadshow  17Fisher and Paykel Healthcare  17Sealegs Corporation  18Air New Zealand  19

Don’t like that Profit? - Choose this!This month NZSA provided further feed back to the External

Reporting Board (XRB) in a whole day meeting on the revision of the accounting standards. The subject is much

wider than the reporting for listed companies. It encompasses 4 tiers (by size) of For-Profit Entities, and 4 tiers of Public Benefit Entities. The Feedback Panel comprises users of public accounts from Charities, Treasury, The Audit office, IOD, Analysts, NZICA, Audit firms, and NZSA. In this environment NZSA pleads for simplicity, plain language, and straightforward, accountable audit assurance. The XRB is reaching the end of its revision and has published the schedule for transition – www.xrb.govt.nz.The issues faced are topical, as there has been comment in the media and in company meetings over the use of profit measures which do not reconcile with International Financial Reporting Standards (IFRS); criticism too, over the profusion of detail which is required under accounting standards, and which is not useful to advisers or shareholders. To understand why the standards are necessary, we need to look back to the period before the Financial Crisis, when several gaps in reporting became evident –

• detailing and explaining financial instruments and hedging systems

Caught on the Net  20Branch Reports  Auckland  21Waikato  25Bay of Plenty  26Wellington  27Canterbury  27Members’ IssuesMutual Recognition of Imputation Credits  28Another way of choosing Shares  28Fisher Funds: Marlin, Barramundi and Kingfish  29Upcoming Events  29

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• summarising and explaining employer sponsored super-annuation schemes

• detailing the impairment of non financial assets, and revaluations

• detailing share based remu-neration and other delayed payment equities

IFRS was introduced to provide standardised guidance for the treatment of all the difficult situations faced by users of accounts, and to guard against the sort of concealed or off-balance-sheet transac-tions which caused so much heartache leading up to 2008.It is also a response to the increasing complexity of business. A task force in Australia found that the complexity is not caused by IFRS. This task force commented that even well-informed and diligent business users may need to seek advice to understand today’s complex economic phenomena. So shareholders should not be afraid to ask questions over their company’s accounts. You are not an ignoramus, if you don’t understand.There is no turning back of the clock. The XRB is finalising its accounting principles and

guidelines for reporting and auditing. IFRS will be NZIFRS. It will be refined and added to, but it is here to stay. It will become more important, the more international our businesses become. Harmo-nising our standards with those of other countries will continue. This will create some problems, as the USA for example is more prescriptive than Australia and New Zealand. Any minor varia-tions from the international rule will have to be explained and justified clearly.The charges against IFRS were defended by Warren Mcgregor in his Australian report. The charge that investors don’t read financial statements could not be sustained simply because they didn’t question. Good reports with full disclosure and reconciliations in the notes will scotch the need for questions. The charge that investors focus on underlying profit or core earnings more than one off rationalisations or windfalls has some merit, but this has been restricted in NZ and Australia by the need to provide reconciliations with the profit declared under interna-tional standards. The inclusion

of too much detail is under-standable, when both countries allow for discretion over how “material” (important) amounts in the annual accounts really are. However, recent improve-ments to IFRS have resulted in: more detailed segment disclo-sures, maturity schedules for debt, more detailed information on cashflows, and better infor-mation on acquisitions. There will be healthy debate. For example supporters of the “True and Fair View Override” say this should take precedence in interpretation, while those who play by the rule say, “make the rule true and fair, and then stick to the rule.”NZSA circulated to the XRB panel, the Herald article by Brian Gaynor showing the profit adjustments by 24 NZ companies. According to Brian, the figures” indicate that a high proportion of our listed companies do not believe that conventional accounting policies give a realistic assessment of their performance.” In fact the construction of a “normalised” or “underlying” profit figure is a common practice amongst investment advisers all over the world. Normalised profit is

There is no turning back of the clock. The XRB is finalising its accounting principles and guidelines for reporting and auditing. IFRS will be NZIFRS. It will be refined and added to, but it is here to stay.

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simply the net profit without the extraor-dinary items such as plant closure, or windfalls from the sale of a large asset. Management is trying to show what an investor can expect under normal circumstances from the on going opera-tions, but there is no standard for this. The Gaynor article warns investors not to become so wedded to management’s assessments of the underlying perfor-mance that they neglect the “truth” of the real performance under IFRSThe FMA has also issued guidance notes for listed companies setting out 10 principles which should be considered when making any statement of profit outside the accepted accounting standard (GAAP in the past – to be NZIFRS) Companies need to say:

a why the alternative is useful, b consider its prominence in the

report, c use an appropriately well known

label, d explain the calculation, e apply a consistent approach from

one period to another, f provide a reconciliation with the

standard, g make it consistent with compara-

tive periods, 1 ensure the measure is objective or

unbiased, h exercise caution in naming items

as one-off, and i acknowledge whether the figure

has been audited.

These measures will apply in the 2014 accounts. So the FMA is also advising investors to consider how close the management assessments are to the “true” situationFinally, Deloittes also published a survey this year of 253 company reports in which alternative profit measures were used. 81% reconciled these with GAAP, 33% explained the purpose, 63% explained the calculation, 45% used a well known and appropriate label, but only 3 companies gained audit approval for their calculations. There is ground to be made up, more detail for our accountants and auditors to absorb, but from 2014 we should enjoy greater certainty over financial reports. Hopefully, investors will then vote for annual accounts that are both “true and fair.”Alan BestEditor

Auckland Edu-cation CoursesWestern Springs Community College will run two education courses in November.Website:www.leisuretimelearning.co.nz/businessandfinanceOur courses are right for new investors, for current investors who need more knowledge, and for those who want to understand their Kiwisaver investments.Course1. Investing for your future – general investing principles - 2*2hr sessionsCommencing 6th November at 7pm; Tutor John HawkinsPrice $65 inc GST; plus $20 for the NZSA course bookCourse 2. Sharemarket basics – under-standing how and why to invest in shares.Commencing 20th November at 7pm; Tutor Jacquie Hagberg – 2*2hr sessionsPrice $65 inc GST; plus $20 for the NZSA course book

Tell your friends, family, and work colleagues about these informative courses. You don’t have to be an NZSA member – just keen to develop your understanding

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2013 Conference Reports - Taking New Zea-land to the worldOur 2013 conference was

opened, as MC, Mathew Underwood, reminded

us, 2 years late, because of the earthquake. With Simon Power and a National Government in the intervening period, it is easy to forget that Leanne Dalziel, now an aspiring mayoral candidate, was Minister of Commerce in 2007, and chaired the parliamentary select committee on finance, which set up the Cameron Task Force on our financial markets. She reminded us that the Chinese have both positive and negative words for crises, and that both Christchurch and the nationwide financial community had to adopt the positive, or constructive view of their respective crises. It’s rather like the old investors’ adage: “Don’t waste a good recession.”Sue Sheldon - Chair of Freightways and Chorus, Director of Contact Energy.Sue’s starting point was: our place in the Global Competi-tiveness Survey. This survey

assembled from 148 countries by the World Economic Forum, from figures returned in New Zealand’s case by our think tank “ NZ Initiative.” This measured our productivity across a range of indicators including infrastructure, health, education, innovation, governance, regulation, debt, and research. Compared with frontrunners Switzerland and Singapore, New Zealand scores highly in the strength and integrity of its institutions, the relative ease of compliance with government regulation, but is understandably weighed down by the small size of its foreign markets. Low rankings in overall infrastructure, debt, and tax, and surprisingly, the collabo-ration between universities and business, need attention. From the 2013 survey results, Sue moved into her familiar fields of Electricity and Telecom-munications. The low rate of return in Contact Energy in spite of the positive concentration on renewable hydro and geothermal sources would be further restricted by Labour Green proposals if they

were implemented. In the fibre optic network, developments could only be hindered by Commerce Commission restrictions on the pricing of the copper network. In spite of innovative marketing like the Gigatown search for the best fibre optic town, Sue warned that our state and political insti-tutions were inward rather than outward looking. The ultra fast broadband project showed New Zealand getting on with its infra-structure while other countries were still working out how to fund and organise the transition. What was still needed was:

• Clear understanding of the role of infrastructure,

• Clear government policy based on broadly accepted principles, and applied across all agencies,

• Clear understanding of risk and return in the infrastruc-ture projects,

• Clear acceptance of a reason-able rate of return to inves-tors, both local and foreign.

Sue also outlined her interest in the Diversity project, aimed at

Compared with Switzer-land and Singapore, New Zealand scores highly in the strength and integrity of its institutions, the rela-tive ease of compliance with government regula-tion . . . . surprisingly, the collaboration between universities and business, need attention

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increasing innovation by including greater gender and ethnic diversity in company governance and management. Three groups of company had been identified – those who had a pipeline of talent set up, - those who needed assis-tance to get started,- and those who had ignored the evidence to this point.Questions covered diversity, Commerce Commission effects on share prices, flexibility of our labour force and wage incentives, and incentives for innovation and research.David Prentice CEO Opus ConsultantsDavid’s PhD in Engineering, and broad Scottish accent, did not hide his enthusiasm for his company. Founded in 1870, reformed as an SOE in 1996, and only listed in 2007, Opus has grown in the last 12 years from 120 staff focussed on the local market to an inter-national consultancy employing 3000 staff of which half are based outside New Zealand. Opus has been short listed as a finalist for the Consulting Engineering Firm of the Century, and is busy embedding a culture of achievement locally and overseas.David quoted a KPMG survey in which over 50% of respondents

rated governments poor at building infrastructure. He blamed procurement depart-ments and procurement systems which encouraged competition and arms-length quotation to the exclusion of cooperative engineering advice. Governments need to consider “the cost of getting it wrong,” as much as the lowest tender for a project. He also addressed the “new normal” in which governments are resched-uling and delaying infrastructure projects.More flexible models of service were being developed in which project teams were assembled and then dismantled after a project, and in which Canadian or UK officers could be a resource for an Australian project. He spoke of joint ventures which balance risk and responsibilities and returns of the participants, and the extent to which technology is driving business rather than answering customer demand. Consultancies need to leverage technology more efficiently. He talked of the radical changes in organisational culture, when staff surveys are oriented to the sort of culture we need, rather than simply feed back satisfaction ratings. Tradi-tional remuneration structures and traditional cultures can be

a barrier to reducing cost, and providing the highest quality of technical service. So the challenge is – to disrupt your own business, to create your own solutions, to anticipate client needs with a global team, to help specifiers not to waste their money. A question on corruption and kickbacks in contracting, drew an adamant refusal to deal. Withdraw if you must, but don’t put staff at risk of corrupt practices.Sir Henry Van Der Heyden - ex chair Fonterra, new chair Auckland Interna-tional Airport.Sir Henry took a broad overview of New Zealand’s overseas markets. He advised us not to forget what and where New Zealand is – some small islands carrying 4 million people in the world’s largest ocean. The trends in the rest of the world of 7 billion people, which increases at the rate of 200k a day or 6m a month are not slowing. Middle class growth is formed by the movement of people from country to city, subsistence to surplus, semi vegetarian diets to diets of high protein and fat. He expects 18 million Chinese to move to cities this year, and for a world middle class of 2 billion, to increase to 4.9 billion by 2030 and 60-65% of those

Opus has grown in the last 12 years from 120 staff focussed on the local market to an in-ternational consultancy employing 3000 staff of which half are based outside New Zealand.

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people will live in Asia. In the West, dairy product consumption and traveller numbers are both declining each year.Henry said that New Zealand had chalked up some useful firsts--

• Prime Minister Helen Clark was first to acknowledge China as a market economy

• NZ was first to support Chi-na’s entry into the WTO

• The top 4 Chinese leaders have all visited New Zealand

• NZ has the first Free Trade Agreement with China

China has grown from a tiny importer of dairy products to the largest in only 10 years. Its tourist visitors to NZ are only exceeded by Australia.China is our biggest protein importer, but India is a bigger market for fat, and we are working on a FT Agreement with India. FTAs are important.Why does Fonterra teach the Chinese to produce milk locally?This is an important risk-mitigation strategy, whereby helping local producers to meet standards and promote the taste expands the market faster, and makes the importer a more acceptable partner.Henry then pointed out that the

NZ dairy exports and the tourist industry are about the same size. However AIA is actually losing market share of Chinese travellers, at the same time as Western tourism is declining. Auckland is situated nodally half way between Asia and South America, an ideal refuelling and lay-by stop. AIA has set ambitious targets for inbound travellers, but it cannot achieve them on its own. What is needed is:

• Infrastructure improvement like simpler visa require-ments (many competitor des-tinations don’t require visas.)

• Improved clearance and pas-senger flow

• Coordination amongst the fractured inbound tourist op-erators

• Free Trade Agreements in-cluding an open skies policy. (Every wide bodied jet on av-erage loading brings $200m of spending into NZ)

Questioners wished to know how Fonterra could succeed while a brewer could not. Henry pointed out that only 4% of NZ’s milk was consumed locally and that the cooperative national structure of Fonterra was quite different from that of the formerly listed brewers. However the difference in commitment was palpable.

During the melamine crisis, Fonterra had made it clear that long- term, it must be in China. With a Chinese population of 1.3b and an Indian of 1.1b plus Indonesia, Malaysia, and Thailand, NZ is well placed to take a long term position.The risks over our long term “100% pure” image from conflicting developments threaten our basic supply of well-watered land, and scenery, make sustainability an ongoing challenge that we cannot afford to ignore. Science, irrigation, and more value added products will all play their part. AIA faces parallel challenges as it seeks to expand the numbers while moving more passengers up the value chain.James Kyd – CMO Tait CommunicationsIt was interesting to hear from an unlisted entity beside those in which shareholders have a closer interest. Tait, formerly a private company is now owned by 3 charitable trusts, Contel, Tait Foundation, and Lady Tait Chari-table Trust. The Tait Foundation was formed following Sir Angus’s visit to Bosch which has a similar structure. Although the company and the Trust’s books are audited each year, the normal disclosure

The world middle class of 2 billion will increase to 4.9 billion by 2030 and 60-65% of those people will live in Asia.

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of a listed company such as revenue, cashflow and balance sheet are not published. However the community has a strong interest in Tait because of its annual funding activity, mainly in the field of education, regional devel-opment, and research. The Company now employs over 800 staff, of which 600 are based in Christchurch. However revenue is split approximately 1/3 from North America, 1/3 from Asia –Pacific, and 1/3 from Europe, Africa and the Middle East. Apart from the shareholding the business enterprise was remarkably similar to our listed companies in its strong customer, marketing focus. However its success and growth depend more than ever on intimacy with customers to develop individual solutions to their communications, safety, and security needs. This means that overseas agents and commissioned sellers have progressively been replaced by Tait’s own staff, and that the information gained has been transferred through the whole organisation to provide a total solution for each customer. The little things that each staff member contributes are what make the total package successful. Two questions emphasised this. IP protection

is ultimately not about what is inside the electronic box, but the solution that it provides to the customer. And, China is a threat, but it does not have 44 years of experience in building total systems and solutions for each customer.Mike Daniell – CEO, Fisher and Paykel HealthcareThe Scrip has followed this company closely over the past few years and the presen-tation is available www.fpcare/presen-tations. Mike’s address began by outlining the increasing healthcare spend in OECD countries, topped predictably by the usual, USA at US$8000 /pp/pa. The increasing spend was also correlated with increasing age and weight. China’s health expenditure increased 19%in 2012 and is expected to treble by 2020. All countries are keen on cost control measures, including early diagnosis, group purchasing, competitive tendering, excise tax on medical devices, best practice incorpo-rating efficient service delivery. FPH’s oppor-tunity then, is to increase effectiveness and efficiency of respiratory care while reducing its intensity. A short history of FPH’s revenue, showed that it took 10 years to achieve the

first $1m to 1982, with a snowballing effect thereafter. However the major challenge remains – to change the behaviour of clini-cians to diagnosis and treatment, using the latest technology in the home.Careful segmentation of Respiratory and Acute Care (RAC) and Obstructive Sleep Apnea (OSA) was explained, with its implica-tions for repeat business in consumables and the need for a high R&D spend at 8.2% of revenue. The continued presence of Auckland supplying 80% of sales, with the growing balance from Mexico and the continuing protection from over 500 patents, as well as the persistence of over 100 distributors and OEMs (equipment manufacturers) was noted as being still in an early growth phase of a product life cycle.Hon Simon Power - Director NZX, Westpac Private Wealth Simon spoke under Chatham House rules and reminisced over the formation of the Advisors and FMA legislation whose implications are still being worked through in the Financial Conduct Act. Several members expressed regret that he had been lost to our legislature

National AGMThe AGM approved a revision of the NZSA rules, and the election of new board members. The Chairman’s report and financial position are available on the NZSA website.Congratulations Christchurch and Canterbury Branch. You mounted a very successful conference.

Chairman John Hawkins and Board members

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NZ Listed Property Sector 2013Name NZX Type Management M Cap $ Div

Yield Price

Argosy ARG Coy Internal 73.8m 6.2% 95cAugusta AUG Coy Internal 65m 5% 80cCDL Inv CDI Coy Internal 149m 3.2% 55cDNZ DNZ Coy Internal 477m 5.5% 163cGoodman GMT U Trust External 1237m 6% 102cKiwi Inc KIP U Trust External 1117m 6% 111cNPT NPT Coy Internal 100m 5.2% 62cPrecinct PCT Coy External 1036m 5.2% 99cProp for Ind

PFI Coy Internal 551m 6.3% 134c

V i t a l Health

VHP U Trust Internal 461m 5.8% 136c

Structural change in the Listed Property SectorWhen I joined The NZSA, most New Zealand property listings were structured as Unit Trusts. After the 87 crash, when property

companies fell over through a combination of high gearing and speculative management, the market moved strongly in favour of more conservative established management companies and Trustee supervised property investment. The unit

trust structure seemed to offer the safest opportunity for the passive investor to protect his capital in supervised and well managed investment.However, it became apparent that the protection afforded by trustees was more apparent than real, especially as the deeds under which they were appointed were written by the management company they were supposed to be supervising. When it came to the remuneration of an external manager and depending on the terms of engagement, managers often claimed both the expenses of operating as well as the cash payment; and, the commission based on total assets grew disproportionately to the service supplied. If the incentive payments were taken as shares, there was continuous dilution of unit holders’ shares and consequently a decline in capital growth, one of the main incentives for investing in property assets.NZSA always advocated a company structure employing its own internal management. When structures were to be changed however, we were clear that this should not be done at any price. In the case of Argosy we were successful. In the case of Vital, members should refer to John Hawkins editorial, Pieces of Eight in the Scrip October 2011, to see how ANZ-controlled, One Path managed to

retain its contract. At any rate, the property chart now looks different, because of the often-overlooked pressure of shareholder activists.Only the big 3 hold out against a commonsense structure which accords retail shareholders a proper voice and a proper vote in annual meetings. Goodman Group listed in Australia, Colonial First State controlled Kiwi Income, and ANZ controlled Vital Healthcare continue to gain ground at the expense of capital growth for ordinary unit holders. There is new life in the property market, but should there be a higher premium in their dividend payout to reflect a unitholder’s slower capital growth?Alan Best

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Board Report for SeptemberWith email pulses on

the Rakon AGM, follow up with the

Synlait board composition and the National Conference in Christchurch, NZSA Board members were kept busy. The conference was very well covered by the South Island press and the 140 attendees was at the maximum for our venue.After further contact with the Australian Shareholders Association, John Hawkins was able to announce a recip-rocal membership agreement by which NZSA members will become associate members of the Australian Association with access to their members’ website and newsletters. We are encouraging NZ members to give their proxies to the Australian Association. However, as the coverage of smaller and medium sized listings is not as complete as ours, it is as well to check the Australian website to see if they have a proxy repre-sentative for your particular meeting.The revision of NZSA rules

was conducted by our legal and regulatory team and the result passed by the AGM. The rules, which are on the NZSA website, are now clearer and cover the issues which have been raised in our activities over the past 6 years, without changing the nature of the Association, or its appeal to our founding members.The Taxation subcommittee has met with the Policy Director of Inland Revenue and covered the following topics in some depth. We started from the position that taxes on share income should be equitable and cost efficient to collect.Mutual Recognition of Imputation Credits: There is some hope of movement here, with the new admin-istration in Australia and by emphasising the need to complete the CER. We will attempt to gain support from our associates in the ASA.Fair Dividend Rate Tax: This has not been given priority within IRD recently, but we have raised the issues again and believe that there is a

better understanding of our objections to the tax. We also questioned the inefficiency of the FDR tax.Capital Gains Tax: IRD recog-nises that Maori land Farms and owner-occupier dwellings would create difficult exemp-tions and that the ultimate tax is likely to be inefficient.Supplementary Dividend payments by NZ Companies to Australian shareholders: This is merely to compensate Australian shareholders for the non resident withholding tax which they are unable to credit against their Australian tax. New Zealand share-holders do gain a credit for the payment of Australian Non Resident Withholding Tax, and so in IRD’s view there is no need for an Australian company to make a supple-mentary payment.Alan Best

Grant Diggle is acting as Chair-man while John Hawkins out of the country for 2 months

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New Zealand listed companies now usually post AGM presentations by the chair and CEO, on their website. Our commentaries therefore concentrate on the flavour of the meeting and the questions raised by shareholders. We encourage members to use the company website, before attending the general meeting, to see what has been said previously, and to familiarise themselves with the latest news. Comments are those of the attendee, who will often be a shareholder in the company, and are not necessarily NZSA policy. Run your cursor over the report heading for a link to the company website

Company Meetings

Rakon AGM 6th September

About 5-10 minutes after the meeting started, Chairman Brian Mogridge advised that about an

hour prior the company had notified the NZX of a loss of about $53.8m for the year ending 31 March 2014. Including a trading loss of $17m. The timing of this announcement meant few, if any of the attendees, would have had the opportunity to see the notice before the meeting and act on the information. Fortunately, I am not a shareholder; despite that I was shocked at the timing.Mogridge provided comments from the ‘Grant Samuels Independent Report’, traversing the creation and ‘failure’ of the Chengdu plant. He stressed that the failure was the result of the Yen being devalued by 30% against the US$, explaining the devaluation was a political move to advantage Japanese manufac-turers and could not have been foreseen.Rakon produces top end ‘chip’ technology including, for USA & EU space markets as well as other high end manufacturers. These are high margin products. I was

surprised when Mogridge stated that the company would soon pay a dividend from cash flows which would be fiscally appropriate at 50% of profit. Staff in France are being reduced, at a cost of about Euro 2m, which will save Euro 2m the following year.Mogridge showed a slide https://w w w . n z x . c o m / f i l e s / a t t a c h -ments/181361.pdf. He explained that he had in interest in mathematics and had noticed the relationship of Chip TCXO, $, Yen, to share price, declining at a similar rate. Such a relationship seemed to be obvious to me. What really disturbed me was that he seemed to be amused or pleased at his discovery with, what I took to be, chuckling as he spoke. The meeting was addressed by the Managing Director, Brent Robinson. Robinson’s address was poorly presented, he could have been ill. His speech should be viewed on the NZX site. One of the speakers commented that he did not think that Rakon was paid enough

for the technology. A day later I still cannot understand how any manufac-turer, let alone with this company’s history, can make such a comment. If your product is a commodity, you are a price taker. If you are ‘High tech’ with outstanding innovation you may be a price maker.Elections were conducted by poll vote. It was probably a wise move not to have a show of hands, although the board held about 30% of the company shares.Brian Mogridge’s nomination was supported by the board. The Chairman held 66m ‘For’ or ‘At Discretion’ proxies which were voted ‘For’ the motion. Your NZSA representative held 10% of this total which were voted against the motion but 10% of the proxies were directed ‘For’. Darren Robinson’s nomination was supported by the board. The Chairman held 55m ‘For’ or ‘At Discretion’ proxies which were voted ‘For’ the motion. Your NZSA representative held 10% of this

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total which were voted against the motion but 10% of the proxies were directed ‘For’. Darren’s justification for being on the board seemed to be that the high end companies, government etc, appreciated being able to deal with someone on the board and that this added value.Herb Hunt, an American, with a NZ wife and NZ passport, stated he has considerable expertise in turning around IT Companies, including IBM. I asked Mr Hunt if he owned any shares? No. Mr Hunt explained that when he joined the board he chose not to purchase shares. He made several comments including, at that time, there was confusion over a director’s ability to invest in the company, and he may revisit the decision. Finally that he did not have the wherewithal of some at the table. The other NZSA proxy, Craig Priscott, addressed the meeting on all elections, speaking against the election of Mogridge & Robinson but for Hunt. Undirected NZSA proxies were voted accordingly.After the election process Mogridge, in response to a question, stated that if the company did not achieve its objectives there would be a changes of the board including himself.Michael Cornell

Northland Port Corporation - Talk about Governance!

Northland Regional Council is hardly known throughout New Zealand for its good governance. The council

owns 52% of Northland Port Corporation (NTH). NTH is an investment company with a 50% share in Northport (profit share $7.4m) and smaller investments in a joint venture for stevedoring and another in cool storage. These investments have their own management and produce revenues of less than $4m. NTH’s significant land bank adjacent to Marsden Point port will be slow to develop because it can only appeal to a narrow range of tenants. At present it produces about $950,000 pa. of rental income including farming revenue of $270,000. For the port, there are also alternative reclamation opportunities near the terminal.Why then have administration expenses risen from $645k in 2010 to over $1m in 2013? With very few debtors and creditors, why is there a board of 8 – as large as Fletcher Building’s? Why is NTH moving to a new building at higher cost from offices that are already larger than necessary for an operation of its size?We might also ask what happened to the separation proposal endorsed by Grant Samuels report 5 years ago and vetoed then by Northland Regional Council. Why not separate the slow moving property from the port, As NTH owns 50% of the

port and the Council owns over 50% of NTH, its proportion of ownership in the port would not be diluted and it would continue to be a strategic cornerstone shareholder. Then there is the suggestion that Northport could takeover some of Ports of Auckland trade. Port of Tauranga is currently doing about 180,000 container equivalents per annum through its container terminal in South Auckland and it is expanding. Where are the costings for a railhead to Marsden Point and a container terminal in West Auckland serviced by Northport.The board of NPC is content to pay a reasonable dividend and maintain a modest return on capital. It is not serving its shareholders, or the ratepayers of Northland. They are asleep on an oppor-tunity which will inevitably slip away unless they start to strategise and govern the business. The Corporation’s AGM will be held on 18th October and members are encouraged to nominate NZ Shareholders Association as their proxy. We hope to make our voting intentions clear before the meeting.Brian Gaynor, in a recent NZ Herald review of the port industry.has expressed simimilar views abour NPT’s performance. see hereAlan Best

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Dorchester Pacific AGM 6th AugustSome companies use their reporting and meeting obligations as oppor-tunities for self-promotion with colourful publications and generous refreshments offered to meeting attendees. Others see such obliga-tions as duties with which they must grudgingly comply with as little cost and effort as they can get away with. Dorchester Pacific leans towards this second group.Given the company’s rocky road this circumspection is probably warranted. But from chairman Grant Baker’s and CEO Paul Byrnes’ addresses to the AGM, better times may be ahead. Having survived the Great Financial Crisis, Dorchester has set about cleaning up its capital structure and balance sheet so it could invest in the generic growth of its existing businesses and be positioned for M&A activity.Dorchester’s total shareholder funds at 31 March 2013 balance date was $33 million. Through the conversion of options and a share placement, funds have increased to $67 million. The company now has 478 million shares on issue. Hugh Green Invest-ments, The Bakery and Paul Byrnes

hold 58.5% of those shares. Further capital raising through the issue of less than 100 million shares might be necessary to fund all the M&A oppor-tunities it sees as available. The company is firmly in the control of those represented on the Board. They earned that right by putting up funds when no one else would. However, with only two independent Directors this leads one to question how the interests of non associated shareholders are advanced and how well the Board maintains its independence from management.Paul Byrnes reported on the company’s three trading arms. Dorchester Finance currently has 65% of its lending on private and commercial motor vehicles and is comfortable in that space. DPL Insurance has a financial strength rating of B+ and was seeking a full Insurance Licence from the Reserve Bank (since granted). There are opportunities for the expansion of existing brands and M&A with smaller Insurance companies unable to obtain a full licence. EC Credit (acquired in October 2012) is tracking ahead of forecasts. Profit guidance is for $6million in the

current year increasing to $10 million in the following two years. Perhaps one day a dividend? The immediate effect post meeting was a 3 cent (12%) drop in share price.There were 8 resolutions put to the meeting. Six of these: the appointment of 4 Directors, re-appointment of auditors and early conversion of optional convertible notes, passed without comment. There were a few votes against the raising of the Director’s fee pool. The only resolution that drew animated discussion was the granting of a loan of $250,000 to Paul Byrnes to allow him to exercise 2,500,000 options. An independent report found that the terms of the loan were reasonable. Reasonable it may have been, but as a Milford Asset repre-sentative pointed out, related party loans in finance companies are not an attractive look. Speakers thought the Board could and should have handled the matter better, particularly when the cost of the independent report had to be added in. Bruce Parkes

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Smiths City AGM 27th August

Two issues arose prior to the AGM. Firstly, concern that the directors

announced their intention to raise their fees annually by the same percentage rate as the CPI. While the Share-holders’ Association had pointed out that the board had not increased its fees for some years and was supportive of an increase, it came as a bit of a shock that the fees increase would become “automatic” so to speak. The Association took the issue up with the board prior to the AGM and it was noted during the meeting that the board took cognisance of the recommendation so that: The fees be increased in line with the CPI or by the same rate in percentage terms as Smiths City group senior and mid-management staff – which ever is the lesser. Note that the CPI increases also come with a three-yearly review by consultants Strategic Pay. Another issue raised was by the Association was about Smiths City Group’s performance in Wellington, in particular the LV

Martin brand. The question was raised prior to the meeting with the assurance that the issue would be covered in CEO Rick Helling’s address. In general terms the company “flies below the radar” with little interest from institu-tional investors. The company is based in Christchurch, and has its main retail base throughout the South Island, with a presence in some North Island centres. Considerable effort has gone into developing a stronger retail presence in Wellington, that if successful, would improve the logistical opportunities for further North Island expansion. Put bluntly, the company wants a strong beachhead - and relatively short lines of supply – which is why Aucklanders would have to zip down to Tauranga to experience Smiths City’s customer service.Smiths City markets are defined broadly as: South Island – excluding Christchurch, Christchurch, Wellington and North Island. The South Island is the company’s strongest

market. It is a market that does well when farming condi-tions are good, but drought always affects sales. So too does the loss or threat of loss of employment. Mining redun-dancies in Greymouth affected sales as did the threat of the possible Tiwai Point closure in Invercargill. Christchurch performance has been defined by the earthquakes. The rebuild has not yet reached the predicted level of activity, and competitors are getting back on their feet. The North Island is also affected by farmers’ confidence – and droughts affect sales. As for Wellington... Rick Hellings stated in his presentation “This is the thorn in our side. We hit the town at exactly the wrong time. The world was in financial meltdown and there was a drop in Government expenditure. Also, we modelled our shops on our South Island stores. They were too small to display our full range of stock and Wellington shoppers prefer to choose rather than rely on assistance. So we closed down our Upper

Hutt store and re-opened on the Kapiti Coast.” Distribution of appliances and home-ware were separate functions. The company has now put all the distribution operations under a single manager, increased the size of the distribution centre and is reviewing the total logistics operation. In addition, Smiths City has moved out of its original Porirua site and moved to a more strategi-cally placed position within the same shopping complex. As Rick Hellings described the new outlet “Shoppers have to pass our front door to get to Big Save and Harvey Norman, and now we are setting plans so they don’t pass our front door.”There were some challenging questions from the floor which were covered in the item about Smiths City Group AGM in the September issue of the Canterbury Branch Newsletter.Barabara Duff and Tim Kerr

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Infratil AGM 13th August

Nearly 200 shareholders and five directors attended this meeting. Mark Tume ably chaired the meeting

in David Newman’s absence. Marko Bogoievski, Chief Executive gave a compre-hensive presentation, and gave compre-hensive answers to several questions raised by shareholders. On behalf of the Association, I asked whether any consideration had been given to bringing management of the company ‘in house’. Considerations would be whether Infratil could create the same business with ‘in house’ management, use of other possible benchmarks to assess effectiveness and finally the company’s preference. Infratil has achieved a 17.8% annual return (compared with an objective of 20%) over its 19 years and this indicates current arrangements are working effec-tively. There will be successes and failures (significant failures being the Kent and Prestwick airport investments), but if the return was significant less than 17% then the current management arrangements would be open to question. On behalf of the Association I complemented Infratil for its national road shows and the industry and company updates that it publishes, and passed on appreciation of the work that Tim Brown and others have put in to brief the Association. The chair thanked the Associ-ation for these comments and acknowl-edged Tim’s contribution to the road shows and other communications.

The asset value of each share is $3.31(including subsidiaries) compared with a current market value of $2.46 prompting a shareholder asked whether there was any corporate raider in the wings who would buy out Infratil at a substantial premium so that he and other older share-holders could leave an inheritance for their children. The response was that the company would endeavour to make the best use of its capital rather than hope for such a buyout.The decision to sell the Prestwick and Kent airports was questioned especially in the light of airport congestion in the UK. These investments have not been successful and have been virtually written off. In particular Ryanair is in a position to drive a hard bargain over Prestwick since it has other options such as using Aberdeen. Infratil did not entirely agree with a comment “So you think it is a dog that should be shot,” since another investor may be better placed to own and manage these airports.The three directors up for election or re-election outlined their experience and skills and were elected with an overwhelming majority. Interestingly, the Chair considered a show of hands voting to be acceptable although other company chairs (e.g. at Chorus) consider it best practice to always hold ballots. AGM results and proxy infor-mation is on the company’s website.Peter Milne

Moa Group AGM 20th August

On 12 August the company advised the NZX that it would suffer a distribution shortfall of 30% of the expected distri-

bution of 195,000 cases. The Chairman Grant Baker opened the meeting, directly addressing the distribution shortfall. He was immediately followed by CEO Geoff Ross who continued addressing these matters. It was explained that the agreed sales targets of 195k cases was the ‘projection’ provided by its distributor Treasury Wine Estates part of the Fosters brewing empire. TWE were the distributors for Ross’s 42 Below, where they did a ‘good’ job. 2012 - 2013 year ended with distribution on track. April – June 2013 distribution a little behind. In June MOA had a sit down with distributor. July was a ‘shocker’ & MOA obtained a written assurance that distribution would recover accepting they would not recoup distribution loss. August announcement made. MOA is in the process of severing ties with TWE.MOA has appointed, from 1 October 2013, a new distributor Tasman Liquor. MOA had to prove itself to Tasman before they would agree to distribute MOA. Tasman are a large distributor in NZ & Australia where it distributes nearly all liquor in NSW.MOA will take a double hit this year. Business has been pushed back 6-9 months, with TWE winding down distribution & MOA & Tasman Liquor having to rebuild distribution.

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MOA are: reinstating a sales team which was disbanded when TWE was appointed - was 4, now 7 staff; MOA will direct sell using 3rd party distribution; Tasman will distribute to wholesale, bars etc. MOA Original is the least profitable but most widely drunk MOA beer, other beers must be pushed. It was obvious that MOA is looking at all opportunities to increase distribution, including supermarkets. There was obvious frustration at the lack of MOA taps in pubs.2012 -2013 Sales NZ $3.1m; USA $.53m; AU $.46m; other $.3m. Lower sales margin in NZ with a bias towards MOA original, which is only sold in NZ & Australia.Ross said that MOA wants to be ‘The NZ beer’ (I thought Stein-lager was). He explained that there are 3 levels of players in the brewing industry, corporate, corporate craft and boutique craft. MOA, due to its potential for scale, shelf life and export strategy, will be in the corporate craft category. Whilst MOA may be perceived as beyond craft in NZ when compared to the world, this is wrong. Individual craft brewers in the USA produce more beer than NZ corporate brewers.

Batch brewing, which though more costly, produces good beer and as volume increases reduces cost. MOA produces some beers only available to shareholders, produced when a brewer creates a ‘special brew’. I asked two questions:Q. If distribution will be 30% below, this is an average and I assume that distribution will get back to normal by the end of the year. So what was the percentage shortfall for the first quarter 2013, which I assume is consid-erably higher?A. Ross seemed concerned with the question, did not know the answer and asked a staff member. The best answer was that distri-bution dropped and would remain at that level this year.Q. MOA brews beer and the pubs, bars aren’t selling it despite people wanting to drink it. Where is the beer that hasn’t been distributed?A. There is a lot at the MOA brewery. Brian Gaynor asked questions trying to dig down as to the explanations by TWE, advice, board’s response, action being taken. These questions were not particularly well answered by

Ross. Note that Milford Asset Management is no longer a ‘substantial shareholder’.Both Baker and Ross seemed uneasy, possibly embarrassed, on occasions when speaking and answering questions. I read into comments that MOA held TWE responsible and were shocked at the sudden deterioration. Ross & Baker own 2.6m shares and control a total of about 6.8m (Annual Report Pg 68).Speaking with Geoff Ross after-wards it is clear that he is very aware of the work that needs to be done to get MOA beer to people that want to drink it and encourage others to drink it.Several times during the meeting Geoff Ross appealed for marketing leads. Seriously he wants you to email MOA with any suggestions or opportunities.MOA produces in excess of a dozen different beers! Those that I tried were very good. I look forward to next year’s meeting.Michael Cornell

Moa Original is the least profitable but most widely drunk Moa beer so other beers must be pushed

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Pacific Edge AGM 22nd August

PEB’s AGM was the best attended in its history, reflecting the broadening of

the shareholder base, and the increased interest in its CxBladder cancer diagnostic products in the USA. Over 60 people were in attendance, with standing room only at the back at the meeting room at the Centre for Innovation at the University of Otago.Chris Swann, Pacific Edge’s Chairman introduced the proceedings for the day. He confirmed that Pacific Edge’s laboratory construction in Pennsyl-vania was on time and under budget, with major milestones met. Mr Swann indicated more US based board appointments were likely for the US based subsidiary of Pacific Edge, known as Pacific Edge Diagnostics USA or PEDUSA. Further board changes in NZ were also a possibility.PEDUSA milestones include CLIA lab certification, the appointment of key staff in the USA, and the initiation of a user program, which will help uptake of the product with major health organisations in the USA.The 2013 financial result was a

$6.5m loss, which was $500,000 less than expected. Swann noted that at the previous year’s AGM, the share price was 20c, but as of the 2013 AGM was 58c, repre-senting a tripling in value for holders over the year.Swann concluded by indicating the FY2014 year is about execution of PEB’s business plan after years of testing, validation and setup.CEO David Darling, deprived of his movie clips by a technical glitch, was proud of the fact PED USA went from the finish of the Pennsylvania laboratory to CLIA registration in only 5 months. CLIA Registration is needed for labora-tories to process test results in the USA. Darling unveiled a customer sales territory map, showing the 19 areas of the USA that PED USA must concentrate on. The first sales executive was appointed on the 1st of July 2013, with three now appointed by the time of the AGM. Your NZSA represent-ative asked how many executives would be appointed by years end and how many in total would be appointed at capacity. PEDUSA intends to have 5 sales executives by years end and a goal of 20 sales

executives at capacity.Darling did say that sales were slightly slower than expected, but that enormous progress had been made in user tests for health organisations and insurance companies to gain confidence in the product. The goal of $100m in gross revenue in five years time was again confirmed, and also that NZ DHBs will commence uptake of CxBladder. He said that large pharmaceutical companies had considered making offers to buy out Pacific Edge, but had been put off due to the global financial crisis. He stated that one of his jobs was to ensure more “meat was put on the bone” in order to ensure greater shareholder value in the event another offer to buy PEB is made. There was an active and enthu-siastic question time from share-holders asking about future products, global sales, and other aspects of the business, after which Directors and management continued with informal discussion over refreshments. Aaron Batnagar

While the company reported a $6.5 milion loss, the share price has tripled in value over the year

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PGG Wrightson’s Roadshow

More change; more of the same. Max Smith went along to the PGG Wrightson road show to see if things are really looking up.

Sir John Anderson will step down at the October AGM, after steadying the company in its hours of need. Mark Dewdney after 4 months as CEO, hosted the roadshow, and confirmed investment in Water Dynamic’s and Acquatek’s irrigation solutions. The roadshow presented a good overview of operations, which is not available on the website, but summarises information available in this year’s annual report. EBITDA bar charts are dominated by: 1. Retail, where PGW’s 99 stores and 570 staff take the largest market share of an estimated NZ market for 250 stores and $2b sales per annum, and2. Seeds, where PGW is a world leading forage and grain seed supplier with revenues of over $400m pa.The EBITDA for Livestock, Wool , Irrigation, South American sales, follow the top two in descending order. Irrigation in particular moved from $30m to $45m in one year, and the new acquisitions will add both technology and marketing to this division.Getting the assets to work harder and faster is a major challenge in this diverse business. However, the graphs show a significant decline in both total assets from $980m in 2012 to $619m in 2013, and a steady decline in debt, which has more than halved over the past 4 years.Mark Dewdney presented well, and shareholders have hopes that the combined dividends they enjoyed from the old Willliams and Kettle, Wrightsons, and Fruitfed will soon be aggregated in PGW’s annual payout. Way to Go!Max Smith

Fisher and Paykel Healthcare AGM 27th August

This year’s AGM was held at the East Tamaki headquarters in their 3rd new “campus like” building mainly used to house the expansion of the R & D division. Shareholders, who either

arrived early or after the meeting, were offered a conducted tour of the site operations.7 million patients were treated with F & P devices in the year – 99% of sales overseas.Several new products were released during the year and many more under development. The new products have contributed the increase in sales in the 2nd half of the year with a 38% increase in sales of consumables and improved margins. The greater range of products has given sales growth greater than costs.Profits for 2014 were forecast to be $90 to $95m (based on US exchange rate of .80c), an increase on the May forecast of $85 to $90m. 2013 - $77m.Dividend was maintained at 12.4c per share and will be maintained in real terms until the long term capital structure of the company is achieved. An overall payout ratio greater than 60% would be maintained.Two new Directors were re elected – Donal O’Dwyer and Geraldine McBride. Both Gary Paykel and Nigel Evans retired at the conclusion of the meetingThe continuation of the share rights plan and the share option plan were approved.There were 4 questions from the floor including a special thanks from NZSA to the retiring directors, especially the ex-chairman Gary Paykel for the cordial discussions on governance, incentive schemes and other issues with the NZSA during recent years.Noel Thompson

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Sealegs Corporation AGM 20th SeptemberProxies: 114,000 - one directed, five undirected.

The AGM was held at Orams Marine conference centre. Previous AGM’s had been

held at the company’s premises at Albany, with a 3pm start time & 4-5pm finish. It is good to see a company listening to what could regarded as a minor concern, but does affect shareholder attendance & participation. Only two of a possible five directors were present, David Glen, CEO and Christopher Weir, independent director, who chaired the meeting. After the meeting I spoke with Glen:He advised that Eric Series was in Mauritius launching a new product, another director had several direc-torships with meetings clashing in September and the third was having unavoidable surgery. I asked questions based on his letter in the first pages of the Annual Report. I have combined his answers with the addresses given during the meeting.The 2011 restructure has started to show benefits in the 2013 year. Unit sales are stationary at 9-12 per month but the factory capacity is about 104-106/year. It is a

struggle to sell Sealegs in the UK for £120k.The company has a robust and reliable platform with 8 years of proven performance but patents expire in 7-8 years. The intention is to licence the Sealegs systems (‘bolt on’, wheels, drives, motors etc) to existing, market leading boat manufacturers. Sealegs systems installations will require minimal changes to designs and boats.The new Sealegs systems have a higher profit margin than the Sealegs boats.The company is confident of ongoing boat sales in NZ and Australia. The dealership network across the USA was ‘too much, too hasty’. The company made the same mistake as many NZ Co’s had, by not realising how large the USA is. Sealegs systems are to be licensed to established manufacturers for installation on their boats; this has far more market potential and profit. Sealegs boats are currently being sold direct, avoiding the dealer’s margin, with prospective clients having access to Sealegs owners who are willing to show their boats. I hope word of mouth and ‘going for a spin’ is sufficient,

though it seems clear licensing Sealegs systems is the future.African sales were in Gabon which has a large French population. Russian Special Forces use Sealegs boats as do the ultra rich who like to use camouflaged Sealegs as maimais.To develop the new systems Sealegs have used collaborative innovation with experts, internal, external and Aukland University. Innovation has been fast, going back to basics, developing fly by wire control systems, components manufac-tured using high technology engineering, carbon fibre, ‘hydro casting’. These developments allow much larger payloads (current 2 ton) with far larger systems on the way. Commercial, military and rescue are always asking for heavier payload systems. The largest system under development has wheels 1m high by .5m wide, enabling a vessel to drive out over shallow estuaries with a large payload. The company believes the larger systems will provide access to new market segments. US Naval Architects are very interested in the larger S200 and S300 systems.Michael Cornell

The company has a robust and reli-able platform with 8 years of proven performance but patents expire in 7-8 years.

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Air New Zealand AGM 27th September

With the timing, the place and the weather all aligned, a bumper

crowd turned out for Air New Zealand’s annual shareholder meeting at MOTAT’s Aviation Display Hall. An innovative choice of location. Not only could we view aircraft from the long gone romantic days of aviation, there was also an opportunity to speak with shareholders who had actually flown or worked on those aircraft. But time and air travel has moved on. Who would want to go back to 8 hours in a flying boat to Sydney dressed in ones’ Sunday best? No wonder the only class was first with service to match.Time has also moved on from 2001 when Air NZ’s flawed move into Ansett brought it to its knees and a government bailout. Now, it is a model of what a successful Mixed Ownership Model business should be. Earnings for the 2013 financial year were up 172% on the previous year – the best in 5 years and 3rd best ever. Gearing is down to 39% - but more on that later – and

dividends for the year totalled 8c a share. An announcement of an extension to the share buy back programme of up to 3% of total shares was good news for shareholders, including the Crown (Government) looking to sell down to a 51% holding some time in the next few months. Given that the Crown has a 70.82% holding, the share buy back could hoover up to 10% of the shares currently available to the market. An impressive turnaround from the dark days of 2001 – recog-nised by a 5.5 cents a share price rise post meeting; and a fitting backdrop for the many accolades paid to John Palmer, for his stewardship of the company since that time, as he stepped down as chairman at the completion of the meeting. Also acknowledged was Deputy CEO Norm Thompson, stepping down after 45 years with the company. CEO Christopher Luxon spoke about the company’s “Go Beyond Plan” building on the foundations of the past through a “four cylinder” approach

of: enhancing the customer experience, developing new markets, improving the efficiency of operations, and investing in the development of the company’s people. He pointed out that the airline industry faced lots of external shocks or uncontrollable factors – the known unknowns. Success is achieved by focussing on the controllables – the growth and cost levers. While great customer service is paramount, it cannot trump high costs. The bottom line is – a low cost base preserves profits. Air NZ’s future is represented by the $1.8 billion commitment to 23 new aircraft over the next 3 years. The new 787 – just test flown and due for delivery next year, is a quantum leap forward in aircraft design and fuel efficiency. On the down side, that commitment will see the gearing ratio jump out to plus 50% but within the 45 – 55% range the Board is comfortable with. Tony Carter and Jim Fox were re-elected and Rob Jager

elected as directors. Tony has taken over as Chairman of the company and Jan Dawson has been appointed Deputy Chair.Shareholders’s questions included: changes of the aircraft livery to black – strong support from stakeholders and focus groups; service to small provincial towns (Masterton) – small 19 seat aircraft are uneconomic and insufficient demand to warrant larger planes; possible loss of engineering jobs – flows on from new aircraft requiring less regular maintenance and being worked through with unions; and dropping of Hong Kong – London route – unable to compete with airlines with large “home populations” at each end. A final point. I congratulate Air NZ for publishing its electronic Shareholder Review in a landscape format. It is so much easier to read on a computer screen and contains all the information a non analytical shareholder needs. When will other companies follow suit?Bruce Parkes

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Caught on the NetDo firms go bad?According to Lee Biggerstaff, David Cicero and Andy Puckett the answer is yes. In a VOX column they outline an empirical approach that identifies unethical CEOs as a cause of unethical corporate behaviour More

Your pension is under attack from all sidesAn Automatic Earth blog identifies 10 of the common threats to pension plans. US centric but still of relevance to us. More

Ten stealth economic trends that rule the world todayIn an Atlantic article, Noah Smith lists major shifts in economic trends. More

Patient Inertia and the status quo biasThis piece of psychological research looks at why patients, through inertia, select an inferior status quo option. Perhaps this explains similar behaviour by many investors. More

Dr Doom says buy sharesNouriel Roubini (Dr Doom), a New York University economics professor who predicted the 2008 crash, now says investors should be overweight in equities. More

Another economist who predicted the financial crisis has just sounded another alarm Reserve Bank of India Govenor, Raghuram Rajan, who in 2005 while chief economist at the IMF challenged Alan Greenspan, has raised the Indian benchmark interest rate to 7.5%. His view is that the extremely low interest rates generated by continued quantative easing are not sustainable. By increasing interest rates now he aims to deter investment in unsustainable activities. More

The most important economist you have never heard ofNobel prize winner Ronald Coase, who recently died aged 102, wrote in 1960 an article that became the most cited law journal paper of all time. His central insight was that if people can bargain with each other and it isn’t costly for them to do so, they will negotiate their way to an efficient solution. More

What is shadow banking?In a VOX column, Stijn Claessens and Lev Ratnovski set out, with some difficulty, to define shadow banking (non traditional banking and insurance) and how it might be regulated. More

How bad calls led to Nokia’s demiseMichael McQueen, in Technology Spectator, puts Nokia’s fall down to success intoxication, geographic isolation and bureaucracy. More

The gender gap in Economics and why it mattersWith Janet Yellen the front runner to be nominated to head the US Federal Reserve, Kathleen Madigan, in her WSJ blog discusses the gender balance in economic doctorates and why gender diversity in policymaking circles might broaden the menu of public policy choices. More

Location, location, locationAn Economist interactive guide to the world’s housing market allows us to compare house price inflation around the globe. New Zealand is not the outlier our politicians and popular press may suggest. More

The “Breaking Bad” schoolThe TV show Breaking Bad has been a hit world wide. The Economist suggests it is also one of the best studies available of the dynamics of modern business. More

Bruce Parkes

The Scrip October 2013 21

Branch ReportsBranch Contacts

Auckland Andrew Reding andrewNZSA@gmail.comWaikato John Davies cjdavies@xtra.co.nzBay of Plenty Jane Lyndon janelyndon@orcon.net.nzWellington Martin Dowse martin@dowsemurray.co.nzCanterbury Robin Harrison robin.harrison@canterbury.ac.nz

We recognise that branch reports in our newsletter do not adequately

represent the expertise and preparation of those presenting. The

work of these professionals who give their time is appreciated by all

who attend. Members are encouraged to refer to the individual com-

pany websites for the latest news and disclosures.

AucklandLink Market Services visit

Eighteen members of the Auckland Branch attended a presentation by Link Market Services on 23rd July, 2013. The

presenters were Marcelle Ashcroft, Head of Business; Stan Malcolm, Head of Operations and Will Malan, Assistant Client Manager.OverviewLink is 50% owned by NZ Exchange Ltd and 50% owned by Link Australia. It was established in 2005, largely on the initiative Mark Weldon of NZX, when BK Registries of Ashburton was acquired.The reasons why NZX became involved in the provision of registry services are summarised by the following extract from the NZX 2004 Annual Report. “ NZX’s joint venture… to form Link Market Services … is a winning formula. For investors, it raises the bar for provision of timely and relevant information about their holdings. For listed companies, it provides genuine competitive

choice. For NZX, it gives access to best in class technology and establishes a revenue stream that will grow with the market.”Link’s business has grown quickly. It now has 40% of the market for registry services in New Zealand including 6 of the top ten listed companies in New Zealand. Its head office is in Auckland while the Ashburton office of the former BK Registries continues as a branch. Link has 37 staff. Its principal competitor is Computershare.Among the initiatives (first to market) of Link since 2005 are-

a Online voting (2009)b Text messaging holding changes (2011)c Payment advices by email (2012)

Link Investor CentreLink has established an on-line investor centre on which investors can do much of the management of their portfolios. It may be accessed at www.investorcentre.linkmar-ketservices.co.nz To register you need your

CSN/Holder Number and FIN. On-line you may update most details; view and print information including tax details of payments received; vote and appoint proxies on line and much more.Some interesting issues were raised:

1 If Link has your cell-phone number they will text you when a holding is trans-ferred- this is an additional security measure. If the transfer is not author-ised you can contact Link and the fraud prevented.

2 Many members have difficulties when their portfolios are held by brokers or other custodians. Link believes im-provements can be made and that they could help in this regard. This issue is discussed by Bruce Parkes in his article “Are your shares held by custodial ser-vices?” on page 6 of the August 2013 issue of The Scrip.

3 The issue arose as to why we receive so many repetitive letters from companies

The Scrip October 2013 22

as to whether we want hard copies of reports etc. Once we have said “no” why do they keep asking the same ques-tion year after year? The reason is that the way the Companies Act is written at the moment a company must each year send to each shareholder either a report or a notice about the availability of reports. The company must do it each year.

Richard Forbes

September Branch MeetingChris Luxton - CEO Air New Zealand

With his background from University of Canterbury to CEO of Unilever Canada, Chris left no doubt that

he would continue the marketing tail wind established by his predecessors.60,000 job applications to the company last year was proof that it is one of New Zealand’s most trusted corporate brands drawing on Tourism as the country’s top employer, and a diaspora of 1/4m expat NZ ambassadors. Staff are trained to think broadly of the tourist experience, well beyond the day-to-day tasks of their jobs. In an industry of big egos and bigger failures, where competitors average 0.7% net profit to sales, AIR hunts with its competitors, and cooperates with its partners in the tourist industry. Chris pointed out that where his previous employer spent $1b on promoting Dove to USA consumers, NZ as a country spends much less on its whole tourist promotion. 28 million Americans have NZ on their travel wishlist, but last year only

176000 actually came. So The 2 big aims for AIR are:

1 Focus on growth – understanding the barriers to inbound travel and overcom-ing them.

2 Contain Costs - by hunting in packs, employing new aircraft, and under-standing what a customer is prepared to pay for.

Questions concerned AIR’s investment in the smaller airline Virgin Pacific, has returned the Tasman route to profit; NZ Government’s mixed ownership model which works well by comparison with the nepotism and inter-ference amongst Asian competitors; subcon-tracting maintenance to China instead of using New Zealand service workshops. Chris corrected this misconception. New wide bodied aircraft would require less mainte-nance. Narrow bodied aircraft would be serviced in NZ and the specialisation would enable Christchurch Engineering to sell its service to other airlines

Fonterra – world largest milk processor

Jonathan Mason, CFO presented to the September Auckland Branch meeting on the Macro Fundamentals of Fonterra’s

dairy business, without reflecting too much on the current noise over quality control, Asian relationships and political enquiry.

• Worlds largest dairy exporter (21% of total global exports)

• Accounts for 25% of NZ’s merchandise exports

• Geographic dairy advantage with con-

sistent rainfall and temperature with lowest variable cost in producing high quality milk (grass fed)

• 95% of production exported. New plant dryer at Darfield, largest in world, with product railed direct to Lyttelton port for export.

• Asia now accounts for 48% of NZ sourced milk products

• Global dairy demand forecast to grow 25% by 2021. India (largest dairy mar-ket in the world), China, Asean and Africa are areas where demand exceeds supply.

• Growth generators were the emerging markets, nutrition for the young (Anlene – calcium supplement), nutrition for the elderly and out of home food services (bakeries) and advanced nutrition ingre-dients such as protein supplements for energy drinks.

• Developing partnerships for global ex-pansion Latam with Nestles + Chile in South America, Europe with Friesland Campina, USA (Dairy Farmers of Ameri-ca), and own dairy farms in China.

There were several questions from the floor including

1 Possible damage from the recent prod-uct recall and the 4 investigations in progress.

2 Palmerston North research centre spends $100m in developing new prod-ucts.

3 Farm gate milk price based on global dairy commodity prices , the added

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value to milk products is reflected in the profit results of Fonterra. 93% of Fonter-ra shareholding is farmer owned.

Noel Thompson

MAINFREIGHT VISIT – global logistics company not a NZ trucking business

To delight, surprise and over-deliver are but some of the features

that Mainfreight endeavours to achieve when dealing with their customers (who number over 30,000 worldwide.)The 19 of us that visited the Auckland domestic Mainfreight site in August were treated in much the same way. The two hour visit was conducted in an informal but efficient and inform-ative manner by CEO Don Braid. Don welcomed questions at all times and stated how asking questions revealed more details and information than if we all just sat and listened. This mentality is exactly what makes Mainfreight the company that it is, and the morning gave us all an insight into how the company is run and managed.

The main points of difference about management at Mainfreight are:

• aspirations to be a 100 year company

• profit sharing, any profit made over and above 10% (in comparison to the previ-ous year) within any branch is shared between all the employees in that branch, from the cafeteria staff through to the management team equally.

• Bureaucracy, hierarchy and superiority does not exist.

• No budgets!• Weekly branch profit and

loss reporting( 226 branches globally) weekly reporting works well because man-agers remember what was discussed and agreed upon from week to week and are expected to act upon it.

• Transparent reporting of branch numbers to employ-ees within that particular branch

The Mainfreight Board functions differently from most companies:

• The board meets 5 x/annum (one of which is the AGM). Each meeting is 2 days long. Meetings are in differ-

ent places/countries so the board can view and experi-ence different branches.

• A small board of 7, 4 of which are independent direc-tors. All directors are active members of the board.

• The Board firmly believes that senior management replacements should come up through the ranks & they work towards this succession planning. Mainfreight has a special culture that is in-bred into employees (5,688 of them) and they would not jeopardize the company culture by looking for sen-ior management from else-where.

• International knowledge is present within the company by having local branch man-agers globally.

Interesting points• 75% of Mainfreight’s rev-

enue is generated off shore (definitely not a NZ trucking company)

• Mainfreight is in 18 differ-ent countries and have very progressive plans for 5 other countries.

• A global presence is impor-tant. Don cited an example

of a USA company hav-ing 120 million to spend on freighting alone. Mainfreight want a slice of this action!

• Mainfreight has been invited to list on the ASX and some other international SX’s. at present they remain solely with NZX

• Mainfreight does not want owner/drivers that are truck drivers they want busi-nessmen who are owner/drivers. Mainfreight endeav-ours to ensure the owner/ drivers earn enough to be able to replace their rigs on a regular basis.

Interesting questions raised:Q. How does Mainfreight keep control of managers in countries such as Russia, Poland etc where dubious practices are rife?A: There are white, grey (dubious) and black (corrupt) lanes in all countries. Mainfreight only travels in white lanes, they avoid using agents so that the company can control the logistics of all transactions and therefore eliminate any of these issues.Q. What branding does Mainfreight use in other countries?A: Tend to use the name of the

The Scrip October 2013 24

Future Auckland Company VisitsOctober and December visits – will be advised by an e-mail to members when they have been confirmed.Please register for each visit

separately with Uli Sperber uksper@gmail.com.Confirmation details will be sent to those who register approxi-mately a week before the visit.

Future Branch MeetingsAll at Alexandra Park Convention Centre, Green Lane. 7pm tea and coffee – 7.30 pm startWednesday 20th November Eric Barret – CEO Sanford; Brian Gaynor – Chair Milford Asset Management Investment Committee2014Wednesday 19th FebruarySpeaker:- Jeff Greenslade, CEO, Heartland Bank

Wednesday 9th April, Speakers to be advisedWednesday 18th June, Speakers to be advised Wednesday 17th September, Speakers to be advisedWednesday 19th November, Speakers to be advised

company that Mainfreight has bought/taken over until the employees themselves start to ask when they are going to be called “MainfreightQ. What does Mainfreight have to offer USA that the existing American logistics companies don’t have?A: Mainfreight is not seen as “one of the big players” in USA so no political connotations are made by using them.The American business model uses a central location with agents who look after east, west, north and south, Mainfreight have local branches throughout the country so relationships are built and maintained, therefore the service provided by Mainfreight is viewed as exceptional.Q. Are NZer’s “tough” enough for the global market?Yes, we are tough enough; in fact NZer’s often have two advantages. First, other countries don’t believe NZ companies will ever be serious competitors.Second, NZer’s have an informal way of building important relationships and we are not seen as having political connections.Q.How much support does the NZ government give?Good support with some of the trade missions within the Government agencies like NZ Trade & Enterprise promoting trade agreements.The amount of information we received just can’t be effectively communicated here, especially the “feeling” of the company and the optimism one feels when viewing and hearing the logistics & management of this company.I would recommend the Mainfrieght book as a good read:” Ready, Fire, Aim,”Helen Polley

The Scrip October 2013 25

WaikatoMark Cairns, CEO Port of Tauranga

Mark drew an audience of about 110, the most ever in the

Waikato and evidence of support locally by POT shareholders.He quickly got underway with focus on safety in the workplace. NZ, with the attitude “she’ll be right, is a disgrace”; the accident rate 5 times that of the UK. Ports are not the worst offenders and the rate at POT is half the average of all ports in NZ.In the rapid-fire and polished display which followed, Mark showed why POT has been a favoured stock among investors. For example, the increase in yearly numbers of containers handled at POT has been 9% against globally 3%.The future looks just as bright with POT driving to be the hub port of NZ distributing to and receiving freight from feeder ports

such as Prime Port Timaru. As Mark sees the future the smaller and loss making ports will not exist as they are. To paraphrase Mark’s words, POT has a future competitive advantage by being able to expand at low incremental cost. For depth of information on PoT, the website is a good source www.porttauranga.co.nz/Home/Mark was just as impressive in his handling of questions. One was about the inland port in prospect on part of 500ha of land in Ruakura a suburb of Hamilton. Yes, in time at around 2019, that is some way off and makes sense and needs “a foundation customer”. Mark had seen Mike Pohio, the CEO of Tainui Investment Group Holdings the day before so clearly has his eye on that particular ball.By their applause at the end of questions the audience acknowledged why he was “Executive of the Year” in 2012.

Meridian EnergyMark’s efficiency of delivery left us with time to explore prospects for the IPO. There were concerns that this one would be as overpriced as MRP; others thought the terms of the IPO would be attractive enough. We will watch the process through October!Martin WatsonHaving Martin on the National board brings advan-tages to Waikato Branch! In the few minutes available, he took us through the latest exchanges with the RAK board, long standing concerns about many share incentives for execu-tives and talks shortly with the IR on commonality of imputation credits between Australia and NZ and on the Foreign Investment Fund rules (irritating to most and complicated for all).Joe Carson

NZ, with the attitude “she’ll be right, is a disgrace”; the accident rate 5 times that of the UK. Ports are not the worst offenders and the rate at POT is half the average of all ports in NZ.

The Scrip October 2013 26

Bay of PlentyMoney Week - A new approach

In March of this year our Committee decided that we would do something different for our education programme

for members and non members and we kicked around a lot of ideas.By May we had managed to get a couple of high profile speakers – Carmel Fisher, Managing Director of Fisher Funds and Cameron Watson, Consultant, Investment Research and Education to come and speak and our small function began to grow! We decided that we could do with a more upmarket venue etc. central with good parking and could hold 100 people. An “After 5” function starting off with finger food, tea/coffee and a cash bar was decided on as we wanted to attract business people and preferably younger people as well as our members attending. 5.30 pm registration and refreshments and starting seminar at 6 pm and finished by 7.45 pm.The event was to coincide with Money Week (held first week of September) which was in its fourth year of being promoted by the Commission for Retirement and Financial Literacy. We really wanted to lift our profile as our Branch is hardly known in the wider Bay of Plenty Region. Due to availability of Carmel, we held it on Monday evening 2 September. Main advertising in press along with editorial from John Hawkins and Branch publicity was done on the Friday before. In

the month leading up to the event Members were encouraged to distribute flyers to friends and businesses and the Chair contacted the six colleges and invited their Economics teacher plus two “star” students to attend. This was taken up with appreci-ation and enthusiasm. Attendance numbers were 55 members and 55 non members and we had a waiting list of hopeful attendees. Capacity for venue was 110.The Chair, Jane Lyndon, welcomed everyone and spoke on NZSA as a whole and the important role it has as the recognised voice of the retail investor.Carmel Fisher spoke on “Lessons I have learnt over 25 years in the Investment Battlefield” and Cameron Watson “Is there still value in the Sharemarket?”We had two prize draws – a book and bottle of wine for two members and for non members we had a membership and bottle of wine. After the two speakers, Kerry Drumm gave a quick overview of what the Branch has to offer for people wanting to become members etc. We had our library books and a number of publications/brochures on display for people to peruse and take some away with them. It was very successful and feedback very positive. Not many signed up as new members on the night but we are working on it and we now have a database to move

forward and grow! As a result, we will be looking to holding a couple of “After 5” functions next year for those that work and cannot make our monthly Friday afternoon Discussion Group meetings and do another Money Week Seminar in 2014.On Friday 27 September at our monthly Discussion Group meeting, we welcomed four guests and one new member as well as our guest speaker.Allan Clarke, Managing Director of Abano Health care gave a very good presentation on his company which achieved a record revenue result of $207 million for the 2013 Financial Year and they are achieving double digit revenue growth in Australia year on year. Half of their revenue is now generated outside of New Zealand.They have just rejected their third takeover proposal. Allan said that Abano is not in discussion or negotiations with a third party and has received no indication whether an offer or revised proposal is likely or imminent.70% of their business is in dental practice (Lumino the Dentists). Their other businesses are in Audiology (“a very valuable and growing business”); Radiology; Diagnostics (Pathology) and Rehabilitation (Orthotic Centre).Jane Lyndon

The Scrip October 2013 27

Wellington

This time last year we were homeless when our then usual meeting place, the

DOC managed Turnbull House, was closed indefinitely with one weeks’ notice as it was deemed an earthquake prone building. It is still there, unaffected by the two earthquakes in July and August this year while a few of our more modern and “safer” building were not so safe after all, and are now damaged and standing empty.No need to worry about your Wellington branch meetings though, our 2013 home, the brand new Royal Society rooms

in Turnbull Street (we liked the Turnbull theme) is appar-ently one of the safest most earthquake proof buildings in Wellington – and it is adjacent to the civil defence HQ.The Royal Society rooms have worked out well for us and we have hosted some fascinating guest speakers, including a pre float Z Energy, and most recently Chorus. We did ask Mighty River Power and Meridian to speak too. MRP said maybe, and then that turned into a no. Meridian said yes, then maybe, then no. I would like to take the

opportunity to thank both organisations for their non attendance, if they had come along some of our members may have been tempted to invest in them, and in the case of MRP we know that would not have been a great result – especially compared to an investment in Z Energy, who did turn up.As for Meridian – I can give no advice or recommendation. On the one hand the government has a big incentive to make it work for the voters investors and is making it easy to buy (like buying a TV with 18 months interest free terms),

an attractive dividend rate, although probably overstated as it won’t be fully imputed, and an incentive to hold until the votes are counted. On the other hand I see low growth, volatile earnings, uncertainty around Tiwai Point, 80% of its cash ripped out to fund dividends, and an industry prone to inter-ference by whichever political party happens to be in power. You choose.Martin Dowse

Canterbury

The reports of our big event for September are reported on pages 3 - 5 of this issue. To have 140 members attend in Christchurch was an excellent achievement, and our profile

was enhanced by the press coverage.

Next meeting: 15th October 1.30pm at Burnside Bowling Club featuring Financial Adviser, Chris Lee.Robin Harrison

The Scrip October 2013 28

Members’ IssuesMutual Recognition of Imputation Credits

NZSA Member Tony Knights has further comments on our strategy to gain recognition by IRD of franking credits

approved by the Australian Tax Office for Australian Companies.“I know for a fact that my Australian counterparts in CER negotiation were trying to harmonise methodology between our 2 countries. To achieve Mutual recognition would increase investment options, trade, and hense prosperity,” Tony says.Tony refutes the idea that making Australian shares more attractive to New Zealanders might inhibit the supply of capital to our

listed companies. “It would further open the doors for capital and increase growth,” he says.“This is not part of an international norm,” Tony points out, but the logical extension of a special relationship that has been devel-oping since the 1970s.The economic evidence indicates that initial loss of tax revenue would be more than compensated in the longer term, on both sides of the Tasman.Editor :The NZSA taxation subcommittee met with Inland Revenue’s Policy director, Emma Grigg, on 30th September. The

above points were discussed. It was clear from this, that MRIC is high on the priority list for CER, and will be part of the usual leaders’ summit with the new leadership in Australia. Both the NZ Prime Minister, and Minister of Finance are advocates for MRIC. NZSA agreed to send the IRD’s economic handout to the Australian Shareholders Association to elicit their support, and to identify members of the business leaders’ forum so that they can promote the idea at their next meeting..Alan Best

Another way of choosing Shares

Several members have been approached recently by IRG to subscribe to

research papers on specific companies. IRG supplies the following research summaries:Comprehensive reports including market, and financial data, for $12.99 each,Key fundamentals including description and financials, for $9.99 each.Such a service would suit an

experienced shareholder who buys through an internet broker and wishes to confirm his own opinion of a company. IRG is not acting as an “adviser” with knowledge of an individual’s personal circumstances or goals.Remember the choices we have in approaching a share purchase:

1 Using a full service broker who knows our personal circumstances and is an

authorised adviser,2 Using a fund manager who

understands our situa-tion and takes care of the administration and risk of investing in a portfolio,

3 Using an independent in-vestment adviser, and then buying through an internet or full service broker. The advice can come through a regular newsletter or from an adviser’s research.

4 Using an internet broker, and doing our own re-search.

5 Combinations of these ap-proaches.

It is easy just to pick up the phone and use the existing channel, but as our knowledge, (and hopefully our wealth) increases, we need to review our options.Alan Best

The Scrip October 2013 29

Upcoming EventsFor more information go to Branch section of NZSA website

2013

October 8 Wellington Branch meeting

October 15 Canterbury Branch meeting

October 22 Waikato Branch meeting

November 20 Auckland Branch meeting

Noember 12 Wellington Branch end of

year function

December 2 Bay of Plenty Branch meeting

December 3 Bay of Plenty Christmas

function

December 3 Waikato Branch Christmas

dinner

2014

February 19 Auckland Branch meeting

April 9 Auckland Branch meeting

Fisher Funds: Marlin, Barramundi and Kingfish

In the Scrip of December 2012, we drew attention to the renewal of the Marlin management contract with

Fisher Funds. Elevation Capital, dissat-isfied with the manager, proposed a winding up. However, the management contract was renewed before share-holders could consider the arguments on both sides, and the break fee was conse-quently higher than it would have been at the end of the five year period. Enquiries with NZX did not reveal any irregularities on the part of the independent directors. Nevertheless the fact that Alistair Ryan, Carol Campbell, and Andy Coupe are the independents common to all 3 listed funds for which Fisher Funds is manager does raise the concern over their independence from that manager.The management contracts over the three funds are for five year terms, making Barramundi reviewable in 2016, while Marlin was renewable in 2012. Kingfish, listed in 2004, comes up for review in 2014. We would expect the directors to look more closely at the performance of the manager, and the terms under which it is employed, before the date of the renewal.In the listed Barramundi (BRM), Fisher Funds earns fees of 1.25% of the Gross Asset Value Monthly. Deductions are made if performance does not meet the benchmarks. A performance fee taken

half in shares and half in cash is for a Net Asset Value 15% or more above the annual starting benchmark. In addition the manger can claim certain expenses above staff and accommodation costs.The Net Asset Value (NAV) of a fund is calculated as the sum of all the invest-ments at market value, less the liabil-ities which include fees, and declared dividends. As the investments are in listed shares which in themselves have a low credit rating, the risk ranking of a diversified fund is lower than that of the individual shares, but it would be viewed by a rating agency as high risk. However funds generally trade at a discount to Gross Asset Value, and are often volatile according to general market sentiment. Consequently although the shares in a fund are liquid, they are usually priced at below the NAV.There are choices here. If you like the manger, there is a whole raft of unlisted funds on the Fisher website, as well as on their competitors. The management fees are similar, the diversity is even greater than that in the listed funds, the volatility is less, and your funds can be withdrawn after a qualifying period, without any discount to NAV, except for tax you owe in the portfolio investment entity (PIE). Alan Best

NEW ZEALAND SHAREHOLDERS ASSOCIATION INCPO Box 6310, Wellesley Street, Auckland Ph (09) 309-9768

Website – www.nzshareholders.co.nz Chairman John Hawkins chairman@nzshareholders.co.nz 021 640 588

Secretary/Treasurer Chris Curlett secretary-treasurer@nzshareholders.co.nz

021738032

Governance Issues Grant Diggle grant.diggle@gmail.comLegal & Regulatory Gayatri Jaduram gayatri@jaduram.co.nzLegal & Regulatory Lyn Lim lyn@forestharrison.co.nzAuckland Issues Andrew Reding andrewNZSA@gmail.comAGM Co-ordination Max Smith maxandcheryl@xtra.co.nzCompany Research Martin Watson martinwatson@xtra.co.nzCo-opted AssociatesProxy Co-ordination Jacquie Hagberg proxies@nzshareholders.co.nzCorporate Liaison Des Hunt desmondhunt@xtra.co.nz (9) 521 6117The Scrip Alan Best fleshnfruity@xtra.co.nz (9) 524 0317

Editor Alan Best

Layout Bruce Parkes

Disclaimer

Comments or information contained in this newsletter or other editions of The Scrip, or within courses conducted by the NZ Share-holders Association including related course books, should not be construed as providing investment advice under the provisions of the Securities Markets Act of 1988 or its Amendments, or the Financial Advisers Act 2008. The point of our activities is to provide you with the tools needed to enable you to assess investment proposals, and decide for yourself.

ISSN: The National Library has allocated the International Standard Serial Number 1179-4275 to The Scrip so that researchers will have access to our material.