tag:blogger.com,1999:blog-61235774736071602622024-03-18T03:03:48.212+00:00The Joyful InvestorA blog for UK investorsThe Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.comBlogger61125tag:blogger.com,1999:blog-6123577473607160262.post-2264505089523922622014-11-10T19:33:00.000+00:002014-11-10T19:33:16.785+00:00<div abp="293">
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<span abp="295" lang="EN-GB"><span abp="296" style="color: #20124d;">The
Fear of Uncertainty, and<o:p abp="297"></o:p></span></span></h3>
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<h4 abp="299" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="300" lang="EN-GB"><span abp="301" style="color: #4c1130;">New
City High Yield Income Fund Ltd<o:p abp="302"></o:p></span></span></h4>
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<b abp="305"><span abp="306" lang="EN-GB"><o:p abp="307"><span abp="308" style="font-family: Calibri;"> </span></o:p></span></b><div abp="857" class="separator" style="clear: both; text-align: center;">
<b abp="305"><span abp="308" style="font-family: Calibri;"><a abp="858" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQTKsPO2cXrhC5zPNhg50FzWbwXTCtDMgrIIIsdAnyIr2TU_f_DMl4fcC9ld56OxvPk3tNR4d8DMXpJT84QOVpbHXU1C5IHKz9kjdxiSddY1fzeqZNRuNaXeo5oIxLzNkYTjAwhaGku6w/s1600/Blank_Fork+wiki.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="859" border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQTKsPO2cXrhC5zPNhg50FzWbwXTCtDMgrIIIsdAnyIr2TU_f_DMl4fcC9ld56OxvPk3tNR4d8DMXpJT84QOVpbHXU1C5IHKz9kjdxiSddY1fzeqZNRuNaXeo5oIxLzNkYTjAwhaGku6w/s320/Blank_Fork+wiki.png" width="320" /></a></span></b></div>
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<span abp="339" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="340" style="font-family: Calibri;">Image is courtesy of Wikipedia<o:p abp="341"></o:p></span></span></div>
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<b abp="344"><span abp="345" lang="EN-GB"><o:p abp="346"><span abp="347" style="font-family: Calibri;"> </span></o:p></span></b></div>
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<div abp="349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="350" style="font-family: Calibri;"><b abp="351"><span abp="352" lang="EN-GB">Uncertainty, what uncertainty?</span></b><span abp="353" lang="EN-GB"> The Vix
index of share volatility is running close to its all-time low, the price of
gold is 38% below its 2011 high, while the S&P 500 is flying high.
Investors, as measured by the <a abp="354" href="http://www.aaii.com/sentimentsurvey?adv=yes"><span abp="355" style="color: blue;">AAII Investor Sentiment
Survey</span></a>, are unusually bullish with bulls outnumbering bears by 3.5 to 1. </span></span></div>
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<b abp="358"><span abp="359" lang="EN-GB"><span abp="360" style="font-family: Calibri;">Yet for the seasoned, long-term investor the future is more uncertain
than usual. Consider the possibilities:<o:p abp="361"></o:p></span></span></b></div>
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<b abp="364"><u abp="365"><span abp="366" lang="EN-GB"><span abp="367" style="font-family: Calibri;"><span abp="1026" style="background-color: white; color: purple;">Scenario A - The Goldilocks Economy</span> <o:p abp="368"></o:p></span></span></u></b></div>
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<span abp="371" style="font-family: Calibri;"><b abp="372"><span abp="373" lang="EN-GB">Most investors are feeling positive. </span></b><span abp="374" lang="EN-GB">The
American and British economies are growing and unemployment is falling fast. <i abp="375">Abenomics</i>
seems to be transforming Japan, while even the EU, thanks to its central
banker, is no longer a big worry. It is only a question of time until economic
growth, interest rates and inflation return to normal levels, and we're back to
the pre-crisis Goldilocks economy </span><span abp="376" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="377" style="mso-spacerun: yes;"> </span>(her porridge
was neither too hot nor too cold, but just right). </span><span abp="378" lang="EN-GB">In
this scenario, it makes sense to concentrate one's investments in the sector
which has most to gain - equities. </span></span></div>
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<span abp="381" style="font-family: Calibri;"><b abp="382"><span abp="383" lang="EN-GB">Yet the experienced investor</span></b><span abp="384" lang="EN-GB"> recalls
that the earlier Goldilocks economy ended in the greatest recession since 1945.
The stock market crashed and it took six and a half years for the FTSE
All-share Index to recover its previous peak in nominal terms. In inflation
adjusted terms, the stock market is still about 10% below where it was in April
2007.</span></span></div>
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<b abp="387"><u abp="388"><span abp="389" lang="EN-GB"><span abp="390" style="font-family: Calibri;"><span abp="1027" style="color: purple;">Scenario B - Back to the 1970s<o:p abp="1028"></o:p></span></span></span></u></b></div>
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<span abp="394" style="font-family: Calibri;"><b abp="395"><span abp="396" lang="EN-GB">Investors who saw their capital eroded by double-digit inflation in
the 1970s and early 1980s,</span></b><span abp="397" lang="EN-GB"> peaking at 25% in 1975,
have the lingering fear that such times could return. Then prices tripled.
Gilts prices fell in real terms by three-quarters in the decade and equities by
16%. Gold, on the other hand, quadrupled in value and oil tripled in value in
real terms. Cash <i abp="398">was</i> trash. Bonds <i abp="399">were</i> trash. If you didn't buy
property, gold or oil, you were best off in equities.</span></span></div>
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<div abp="401" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="402" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;"><span abp="403" style="mso-list: Ignore;">Ø<span abp="404" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="405" dir="LTR"></span><span abp="406" style="font-family: Calibri;"><b abp="407"><span abp="408" lang="EN-GB">Will the vast increase in money supply via
so-called 'quantitative easing' eventually lead to a repeat of 1970s inflation
or worse? </span></b><span abp="409" lang="EN-GB">The consensus among economists, as in a recent
article in <a abp="410" href="http://www.economist.com/news/finance-and-economics/21629215-ending-quantitative-easing-may-be-penny-wise-pound-foolish-early-retirement"><i abp="411"><span abp="412" style="color: blue;">The
Economist</span></i></a>, is that it hasn't and so it won't. But economists have such
a poor record of predicting outcomes, that the investor would be foolish to put
all his money on them. In the high inflation scenario, a mix of equities, property
and commodities (particularly gold and oil) provides the best defensive portfolio.<b abp="413"><u abp="414"><o:p abp="415"></o:p></u></b></span></span></div>
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<b abp="418"><u abp="419"><span abp="420" lang="EN-GB"><o:p abp="421"><span abp="422" style="text-decoration: none;"></span></o:p></span></u></b> </div>
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<b abp="426"><u abp="427"><span abp="428" lang="EN-GB"><span abp="429" style="font-family: Calibri;"><span abp="1029" style="color: purple;">Scenario
C- Deflation and Stagnation<o:p abp="1030"></o:p></span></span></span></u></b></div>
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<b abp="433"><u abp="434"><span abp="435" lang="EN-GB"><o:p abp="436"><span abp="437" style="text-decoration: none;"><span abp="438" style="font-family: Calibri;"></span></span></o:p></span></u></b> </div>
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<!--[if !supportLists]--><span abp="441" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="442" style="mso-list: Ignore;">Ø<span abp="443" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="444" dir="LTR"></span><span abp="445" style="font-family: Calibri;"><b abp="446"><span abp="447" lang="EN-GB">Will we
enter a period of deflation? </span></b><span abp="448" lang="EN-GB">No one in the West has
experienced the impact of deflation on economic activity in living memory. Yet
deflation is not far away. In the Eurozone prices are rising at 0.3%, in the US
by 1.7%, in China by 1.6% and in the UK by 1.2%.* <a abp="449" href="http://www.economist.com/news/finance-and-economics/21631145-economic-policies-are-diverging-developed-world-deflation-looms-every-man"><span abp="450" style="color: blue;">Buttonwood</span></a>,
in this week's <b abp="451"><i abp="452">Economist</i></b>, fears that deflation looms. Our main
reference is Japan, where 14 years of gentle price declines coincided with
massive deflation in asset values, a shrinking GDP per capita, and abnormally
low interest rates. *</span><span abp="453" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">July to September quarter at annual rate, source <i abp="454">The
Economist</i>.</span></span></div>
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<div abp="456" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="457" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="458" style="mso-list: Ignore;">Ø<span abp="459" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="460" dir="LTR"></span><span abp="461" style="font-family: Calibri;"><b abp="462"><span abp="463" lang="EN-GB">Will economic growth continue at its present
low level?</span></b><span abp="464" lang="EN-GB"> Real world GDP growth, which averaged
3.3% in the ten years to 2007, averaged 2.2% in 2012 and 2013. And the outlook
is murky, in part because China's growth rate is falling fast. In a recent
article in the <a abp="465" href="http://blogs.ft.com/the-a-list/2014/10/24/realising-chinas-sustainable-growth-rate/"><i abp="466"><span abp="467" style="color: blue;">Financial
Times</span></i></a>, Summers and Pritchett of Harvard reckon China's growth rate will
fall to 4% per annum for the next two decades. This compares to 9.1% p.a. in
the ten years to 2007.</span></span></div>
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<div abp="469" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="470" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="471" style="mso-list: Ignore;">Ø<span abp="472" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="473" dir="LTR"></span><span abp="474" style="font-family: Calibri;"><b abp="475"><span abp="476" lang="EN-GB">Will interest rates remain abnormally low?</span></b><span abp="477" lang="EN-GB"> 10-year government bonds yields are at historic lows - 2.35% in the
US, 0.46% in Japan, 0.9% in Germany and 2.54% in the UK - while central bank
rates are near or are at zero. And government bond yields are still falling. </span></span></div>
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<div abp="479" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="480" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="481" style="mso-list: Ignore;">Ø<span abp="482" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="483" dir="LTR"></span><span abp="484" style="font-family: Calibri;"><b abp="485"><span abp="486" lang="EN-GB">When will government debt start falling?</span></b><span abp="487" lang="EN-GB"> Net government debt in the advanced economies has increased from
46% in 2007 to 78% in 2013, according <a abp="488" href="http://www.economywatch.com/economic-statistics/economic-indicators/General_Government_Net_Debt_Percentage_GDP/"><span abp="489" style="color: blue;">to
Economy Watch</span></a>. And it is still rising.</span></span></div>
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<span abp="492" style="font-family: Calibri;"><b abp="493"><span abp="494" lang="EN-GB">If the world's economy does stagnate</span></b><span abp="495" lang="EN-GB"> and
we are in for a long period of stable or deflating prices and ultra-low
interest rates, then the corporate sector will suffer. Revenues will stagnate,
as will profits and investment. The best defence is to own debt. As cash yields
next to nothing, government 10-year bond prices are at all-time highs, and equities
will not live up to current expectations, it pays to look elsewhere for a
steady income.</span></span></div>
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<span abp="498" style="font-family: Calibri;"><b abp="499"><span abp="500" lang="EN-GB">With these uncertainties, the individual investor should consider
investing for all three scenarios </span></b><span abp="501" lang="EN-GB">to reduce the
portfolio's risk. While reducing risk incurs the cost of lower returns, it
should provide the investor with smoother, less volatile returns. And investors
will sleep better at night, though they should be alert during the day. While I
invest for the long-term, thirty years in my case, I am alert to the fact that
events can change overnight. And the portfolio mix should be reviewed regularly
in the light of changing scenarios.</span></span></div>
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<b abp="504"><span abp="505" lang="EN-GB"><span abp="506" style="font-family: Calibri;">A possible portfolio could include:<o:p abp="507"></o:p></span></span></b></div>
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<span abp="510" lang="EN-GB"><span abp="511" style="font-family: Calibri;">1. <b abp="512">Equities</b>. Companies are always reluctant to cut dividends
when trading is weak and generally increase payouts when trading recovers. Over
almost any extended period, the <b abp="513">2012 Barclays Equity/Gilt</b> study shows
that equities outperform bonds and cash (</span><a abp="514" href="http://thejoyfulinvestor.blogspot.co.uk/2013/01/why-volatility-matters.html"><span abp="515" style="color: blue; font-family: Calibri;">see
an earlier article</span></a><span abp="516" style="font-family: Calibri;">). </span></span></div>
<div abp="517">
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<div abp="518" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="519" lang="EN-GB"><span abp="520" style="font-family: Calibri;">2. <b abp="521">Gold and Oil</b> are two commodities that offer defensive
qualities and are fairly independent of the financial markets. While I prefer
oil to gold, gold has a long history of protecting wealth in inflationary
periods. This is discussed further </span><a abp="522" href="http://thejoyfulinvestor.blogspot.co.uk/2013/02/oil-is-better-investment-than-gold-and.html"><span abp="523" style="color: blue; font-family: Calibri;">here</span></a><span abp="524" style="font-family: Calibri;">.</span></span></div>
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<span abp="527" lang="EN-GB"><span abp="528" style="font-family: Calibri;">3. <b abp="529">Alternative income producing investments</b>, such as UK </span><a abp="530" href="http://thejoyfulinvestor.blogspot.co.uk/2014/10/commercialproperty-time-to-invest-anduk.html"><span abp="531" style="color: blue; font-family: Calibri;">commercial
property</span></a><span abp="532" style="font-family: Calibri;"> and Japanese </span><a abp="533" href="http://thejoyfulinvestor.blogspot.co.uk/2014/10/isit-time-to-invest-in-japanese-housing.html"><span abp="534" style="color: blue; font-family: Calibri;">residential
property</span></a><span abp="535" style="font-family: Calibri;">, the subjects of my previous two articles, offer a steady source
of income that is relatively independent of the vagaries of the stock market.</span></span></div>
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<span abp="538" lang="EN-GB"><span abp="539" style="font-family: Calibri;">4. <b abp="540">Corporate preference shares and bonds</b> continue to yield income,
unlike government bonds, well in excess of inflation. These high-yield fixed
return investments come into their own in a stable price, slow growth economy.
To obtain a good spread of such securities, it makes sense to opt for a
collective investment. </span><a abp="541" href="http://thejoyfulinvestor.blogspot.co.uk/2014_03_01_archive.html"><span abp="542" style="color: blue; font-family: Calibri;">I have
explained</span></a><span abp="543" style="font-family: Calibri;"> why investment trusts are a superior vehicle to open ended funds
or exchange traded funds for most equity investments. The same arguments hold
good for corporate fixed income. One such investment company is the <b abp="544">New City
High Yield Investment Fund</b>.</span></span></div>
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<span abp="547" lang="EN-GB"><span abp="548" style="font-family: Calibri;">---------------------------------------------------------------------------------------------------------------------------</span></span></div>
<div abp="549">
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<h3 abp="550" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="552" lang="EN-GB"><span style="color: #4c1130;">New
City High Yield Income Fund Ltd<o:p abp="554"></o:p></span></span></h3>
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<div abp="1049" class="separator" style="clear: both; text-align: center;">
<a abp="1050" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG9hTUIfAxvFLjulTXjTDlECCnDfBZEyIC8kMJkO4IlGOvQ8a0hiKsSptCmYpDquJtfiXn25NS5biKBHhkq8iRETmuzpWO0bBhyix6VaVXtK_3xpoa1SRWiuEUcXXn0lt-WcdwV_ILomc/s1600/NCY+-+Sir+Michael+Hintze,+founder+of+CQS+website.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1051" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgG9hTUIfAxvFLjulTXjTDlECCnDfBZEyIC8kMJkO4IlGOvQ8a0hiKsSptCmYpDquJtfiXn25NS5biKBHhkq8iRETmuzpWO0bBhyix6VaVXtK_3xpoa1SRWiuEUcXXn0lt-WcdwV_ILomc/s1600/NCY+-+Sir+Michael+Hintze,+founder+of+CQS+website.jpg" /></a></div>
<div abp="556" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: center;">
<span abp="568" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="569" style="font-family: Calibri;">Sir
Michael Hintze, founder, courtesy CQS website<o:p abp="570"></o:p></span></span></div>
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<span abp="573" lang="EN-GB"><o:p abp="574"><span abp="575" style="font-family: Calibri;"> </span></o:p></span></div>
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<span abp="578" style="font-family: Calibri;"><b abp="579"><span abp="580" lang="EN-GB">Since CQS took over the New City High Yield Income Fund Ltd (NCY) in
2007,</span></b><span abp="581" lang="EN-GB"> the fund has done what it set out to do -
provide a capital gain with low volatility and a growing income for its
investors. It has been helped by the low interest rate, low inflation
environment. As such, it provides the investor with a good defence against the
deflation and stagnation scenario.</span></span></div>
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</div>
<div abp="583" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="584" lang="EN-GB"><span abp="585" style="font-family: Calibri;">The price (in blue) and net asset value (NAV in red) of <b abp="586">NCY</b>
has bettered the FTSE 350 High Yield index (in olive green) over the past five
years:</span></span></div>
<div abp="587">
</div>
<div abp="1071" class="separator" style="clear: both; text-align: center;">
<a abp="1072" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhS_AXd12dJsXUEj_BCaMSvRBB4yJUL-6zGhJ3JKANl88CP26xSpdLDfeS1wo8XFCooC7GSVqQPI24Rg6EAvyR9F_wwrNyiwCSc62nVOVA4UaIxEDnx3x-hR2KLPHzkwoTEQrC4Bx5Qa5I/s1600/New+City+High+Yield+vs+FTSE+350+H+yield.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1073" border="0" height="141" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhS_AXd12dJsXUEj_BCaMSvRBB4yJUL-6zGhJ3JKANl88CP26xSpdLDfeS1wo8XFCooC7GSVqQPI24Rg6EAvyR9F_wwrNyiwCSc62nVOVA4UaIxEDnx3x-hR2KLPHzkwoTEQrC4Bx5Qa5I/s400/New+City+High+Yield+vs+FTSE+350+H+yield.png" width="400" /></a></div>
<div abp="594" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="595" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="596" style="font-family: Calibri;">NCY price and NAV compared to FTSE
350 high yield in green, courtesy <i abp="597">Investors Chronicle</i>, click to enlarge<o:p abp="598"></o:p></span></span></div>
<div abp="599">
</div>
<div abp="600" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="601" style="font-family: Calibri;"><b abp="602"><span abp="603" lang="EN-GB">NCY has been managed by Ian Francis of CQS since 2007</span></b><span abp="604" lang="EN-GB">. He and his team have invested in bond-like instruments in companies
that are located in jurisdictions with a good record of ethical behaviour and
legal integrity. It is heavily weighted to the UK and sterling. And the fund's
debt amounts to just 8.6% of its equity.</span></span></div>
<div abp="605">
</div>
<div abp="606" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="607" style="font-family: Calibri;"><b abp="608"><span abp="609" lang="EN-GB">At the current offer price of 64p, NCY trades on a 5% premium to net
asset value and yields 6.5%.</span></b><span abp="610" lang="EN-GB"> It is incorporated in
Jersey and is listed on the main market of the LSE. <b abp="611">NCY</b> has a market
capitalisation of 192 million pounds and a total expense ratio (TER) of 1.2%,
which includes the annual management fee of 0.8%.</span></span></div>
<div abp="612">
</div>
<div abp="613" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="614" style="font-family: Calibri;"><b abp="615"><span abp="616" lang="EN-GB">NCY is, within the high yield sector, conservatively managed</span></b><span abp="617" lang="EN-GB">:</span></span></div>
<div abp="618">
</div>
<div abp="619" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="620" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="621" style="mso-list: Ignore;">Ø<span abp="622" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="623" dir="LTR"></span><span abp="624" style="font-family: Calibri;"><b abp="625"><span abp="626" lang="EN-GB">The fund is widely spread geographically in
developed markets</span></b><span abp="627" lang="EN-GB">. 60% of its assets are in
sterling, 21% in US dollars, 8% in Euros and 6% in Australian dollars. The
remainder is denominated in Swedish, Norwegian and Swiss currencies. <b abp="628">NCY</b>
has no exposure to emerging markets, where the risk of default is higher.</span></span></div>
<div abp="629">
</div>
<div abp="630" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="631" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="632" style="mso-list: Ignore;">Ø<span abp="633" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="634" dir="LTR"></span><span abp="635" style="font-family: Calibri;"><b abp="636"><span abp="637" lang="EN-GB">NCY is heavily invested in bonds</span></b><span abp="638" lang="EN-GB"> (76% of assets) with the remainder in preference shares (11%) and
convertibles (5%) and just 8% in equities.</span></span></div>
<div abp="639">
</div>
<div abp="640" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="641" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="642" style="mso-list: Ignore;">Ø<span abp="643" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="644" dir="LTR"></span><span abp="645" style="font-family: Calibri;"><b abp="646"><span abp="647" lang="EN-GB">The fund is invested in 137 different issues</span></b><span abp="648" lang="EN-GB">. The largest, Phoenix Life Floating rate note 2021, accounts for
only 3.6% of the total. All issues are backed up by listed companies.</span></span></div>
<div abp="649">
</div>
<div abp="650" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="651" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="652" style="mso-list: Ignore;">Ø<span abp="653" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="654" dir="LTR"></span><span abp="655" style="font-family: Calibri;"><b abp="656"><span abp="657" lang="EN-GB">Dividends paid to investors are covered by
revenue earnings per share</span></b><span abp="658" lang="EN-GB">, allowing capital gains
to be reinvested. The fund has a revenue reserve of 3.5p a share that would
allow it to continue to payout dividends at the current rate were revenue
income to fall.</span></span></div>
<div abp="659">
</div>
<div abp="660" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="661" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="662" style="mso-list: Ignore;">Ø<span abp="663" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="664" dir="LTR"></span><span abp="665" style="font-family: Calibri;"><b abp="666"><span abp="667" lang="EN-GB">Gross debt is just 8.6% of equity</span></b><span abp="668" lang="EN-GB">. </span></span></div>
<div abp="669">
</div>
<div abp="670" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="671" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="672" style="mso-list: Ignore;">Ø<span abp="673" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="674" dir="LTR"></span><span abp="675" style="font-family: Calibri;"><b abp="676"><span abp="677" lang="EN-GB">The company manages its premium and discount
to NAV</span></b><span abp="678" lang="EN-GB">, thereby dampening the volatility of its
share price. Also, by selling new shares at a premium and buying back issued
shares at a discount, NCY increases the NAV for its shareholders. It placed 30
million pounds of shares in December 2013.</span></span></div>
<div abp="679">
</div>
<div abp="680" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="681" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="682" style="mso-list: Ignore;">Ø<span abp="683" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="684" dir="LTR"></span><span abp="685" lang="EN-GB"><span abp="686" style="font-family: Calibri;">It helps that one of <b abp="687">NCY'</b>s board
members, with 1.8% of its equity worth 3 1/2 million pounds, has a large stake
in its future. And seven institutional investors hold a further 44% of its
issued capital.</span></span></div>
<div abp="688">
</div>
<div abp="689" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="690" style="font-family: Calibri;"><b abp="691"><span abp="692" lang="EN-GB">NCY presently trades at a premium of 5% compared to its latest NAV
of 61.2p a share</span></b><span abp="693" lang="EN-GB">. This is at the lower range of the
premium that the fund habitually commands. <b abp="694">NCY</b> rarely trades at a
discount to NAV.</span></span></div>
<div abp="695">
</div>
<div abp="1115" class="separator" style="clear: both; text-align: center;">
<a abp="1116" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiH4LZo5X09IPCNae6WA8mVTpBGFOtDTscJXEleVELg0IIavecGIaP3bypkdzi30ZBeoQwYQLzyIWOgUELBFFAN1qiZShofACroSawrB_P8tEIf8Ixa0u8NHjdilASahsmIAuYhmKXDrnM/s1600/NCY+premium-discount.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1117" border="0" height="137" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiH4LZo5X09IPCNae6WA8mVTpBGFOtDTscJXEleVELg0IIavecGIaP3bypkdzi30ZBeoQwYQLzyIWOgUELBFFAN1qiZShofACroSawrB_P8tEIf8Ixa0u8NHjdilASahsmIAuYhmKXDrnM/s400/NCY+premium-discount.png" width="400" /></a></div>
<div abp="701">
</div>
<div abp="702" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="703" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="704" style="font-family: Calibri;">NCY premium/discount to Net Asset
Value, courtesy <i abp="705">Investors Chronicle</i>, click to enlarge<o:p abp="706"></o:p></span></span></div>
<div abp="707">
</div>
<div abp="708" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="709"><span abp="710" lang="EN-GB"><span abp="711" style="font-family: Calibri;">Investors will note:<o:p abp="712"></o:p></span></span></b></div>
<div abp="713">
</div>
<div abp="714" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="715" lang="EN-GB"><span abp="716" style="font-family: Calibri;">1. <b abp="717">As a predominantly fixed income fund</b>, <b abp="718">NCY</b> would
perform badly if inflation and central bank interest rates were to head
considerably higher. <b abp="719">NCY</b> is a bet that central banks in the US, UK and
EU primarily, keep inflation within their targets, which are around 2 to 3%. </span></span></div>
<div abp="720">
</div>
<div abp="721" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="722" lang="EN-GB"><span abp="723" style="font-family: Calibri;">2. <b abp="724">It is possible that a prolonged period of very low sovereign
bond yields</b> will reduce the income that NCY obtains from corporate
borrowers. On the other hand, in this case, the capital value of the fund
should rise.</span></span></div>
<div abp="725">
</div>
<div abp="726" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="727" lang="EN-GB"><span abp="728" style="font-family: Calibri;"><span abp="729" style="mso-spacerun: yes;"> </span>3. <b abp="730">The possibility of
default</b> should always be in the mind of the investor in debt issues. While
its present portfolio looks fairly solid, it would be a miracle if <b abp="731">NCY</b>
avoided default at some point on one of its 130 holdings. In a severe financial
crisis, <b abp="732">NCY's portfolio</b> is at a far greater risk of default than holders
of sovereign debt in the countries in which it is currently invested. The
investor must assess whether <b abp="733">NCY's</b> superior yield - 6.5% compared to
2.5% for a 10-year Gilt - is worth the risk.</span></span></div>
<div abp="726" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="727" lang="EN-GB"><em><span style="font-family: Calibri;">Disclosure: I hold no position in NCY.</span></em></span></div>
<div abp="734">
</div>
<div abp="735" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="736" lang="EN-GB"><o:p abp="737"><span abp="738" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="739">
</div>
<div abp="740" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="741" lang="EN-GB"><o:p abp="742"><span abp="743" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="744">
</div>
<div abp="745" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="746" lang="EN-GB"><o:p abp="747"><span abp="748" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="749">
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com16tag:blogger.com,1999:blog-6123577473607160262.post-12429033289402222672014-10-30T14:39:00.000+00:002014-10-30T14:39:01.840+00:00<div abp="294">
</div>
<h3 abp="295" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="296" lang="EN-GB"><span abp="297" style="color: #20124d;">Is
it time to invest in Japanese housing?<o:p abp="298"></o:p></span></span></h3>
<div abp="299">
</div>
<h4 abp="300" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="301" lang="EN-GB"><span abp="302" style="color: #660000;">And
Japanese Residential Investment Company Ltd</span></span></h4>
<h4 abp="300" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="301" lang="EN-GB"><span abp="302" style="color: #660000;"><o:p abp="303"></o:p></span></span> </h4>
<div abp="304">
</div>
<div abp="960" class="separator" style="clear: both; text-align: center;">
<a abp="961" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWh7tpVS94WOvoymc9uwHVspi9fOWUWlDWdkM62CjnaG3ytv5uuT5VEJeiySEH1KCitbhT4HNXflpbgHWmFHkbZU7vWZFwxPwzgy6fTVZdA81FVEiOOnmAis-Wv6VzMvZSlSl2CpCw5F8/s1600/1024px-Tokyo+Skyscrapers_of_Shinjuku_2009_January_(revised).jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="962" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWh7tpVS94WOvoymc9uwHVspi9fOWUWlDWdkM62CjnaG3ytv5uuT5VEJeiySEH1KCitbhT4HNXflpbgHWmFHkbZU7vWZFwxPwzgy6fTVZdA81FVEiOOnmAis-Wv6VzMvZSlSl2CpCw5F8/s1600/1024px-Tokyo+Skyscrapers_of_Shinjuku_2009_January_(revised).jpg" height="175" width="320" /></a></div>
<div abp="305" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="337" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="338" style="font-family: Calibri;">View of Shinjuku Ward, Tokyo,
courtesy Wikipedia<o:p abp="339"></o:p></span></span></div>
<div abp="340">
</div>
<div abp="341" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="342" style="font-family: Calibri;"><b abp="343"><span abp="344" lang="EN-GB">For the contrarian investor, the Japanese housing market is
appealing.</span></b><span abp="345" lang="EN-GB"> <b abp="346">After all, could it be worse?</b>
House prices have been sliding for the last 24 years. The Japanese economy has
not lost one decade, but two and a half decades. Deflation means that the
consumer price index is below where it was in 1999. The yen has lost 27% of its
value against the pound in the past year. The nation has the fastest ageing
population in the world. And net public debt stands at 134% of GDP, which is
second only to Greece.<span abp="347" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="348">
</div>
<div abp="349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="350" style="font-family: Calibri;"><b abp="351"><span abp="352" lang="EN-GB">But the contrarian
investor sees a cup half full.</span></b><span abp="353" lang="EN-GB"> After 24 years of
declining house prices, houses cost one-third of what they cost in 1990. <i abp="354">Abenomics</i>,
as the Prime Minister's free spending and loose monetary policy is called, has
pushed inflation* to 1.1% this year and unemployment is at a 17-year low. The
pound buys more yen than at any time in the last six years.</span><span abp="355" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"> </span><span abp="356" lang="EN-GB">Household
numbers continue to grow. Meanwhile property companies can borrow funds at less
than one percent interest. </span></span></div>
<div abp="358" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="359" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="360" style="font-family: Calibri;">*Core inflation excluding taxes.<o:p abp="361"></o:p></span></span></div>
<div abp="362">
</div>
<div abp="363" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="364" lang="EN-GB"><o:p abp="365"><span abp="366" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="367">
</div>
<div abp="368" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="369"><span abp="370" lang="EN-GB"><span abp="371" style="font-family: Calibri;">Residential Property<o:p abp="372"></o:p></span></span></b></div>
<div abp="373">
</div>
<div abp="374" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="375" lang="EN-GB"><span abp="376" style="font-family: Calibri;">The bubble in Japanese house prices is captured in this dramatic
graph:</span></span></div>
<div abp="377" style="text-align: center;">
</div>
<div abp="986" class="separator" style="clear: both; text-align: center;">
<a abp="987" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQryR95egXiFzYiz6VciPObd1HXSwpzyutcBjJn6eAmg_MX0UdyYbvbQ1K14IJyqudVALj6FashBT0-TSAPCz52FKrfn9HKhm545u0NoXBtXKL0gOZyYPsUd6zinswtd9AsxmSoXcqAyA/s1600/japanese-home-prices+globalhousingbubble.com.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="988" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQryR95egXiFzYiz6VciPObd1HXSwpzyutcBjJn6eAmg_MX0UdyYbvbQ1K14IJyqudVALj6FashBT0-TSAPCz52FKrfn9HKhm545u0NoXBtXKL0gOZyYPsUd6zinswtd9AsxmSoXcqAyA/s1600/japanese-home-prices+globalhousingbubble.com.png" height="240" width="400" /></a></div>
<div abp="378" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="379" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="380" alt="japanese-home-prices globalhousingbubble.com.png" id="Picture_x0020_1" o:spid="_x0000_i1030" style="height: 211.5pt; mso-wrap-style: square; visibility: visible; width: 352.5pt;" type="#_x0000_t75"><span abp="381" style="font-family: Calibri;">
<v:imagedata abp="382" o:title="japanese-home-prices globalhousingbubble.com" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.png">
</v:imagedata></span></v:shape></span><span abp="385" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="386" style="font-family: Calibri;">Graph courtesy
globalhousingbubble.com, click to enlarge<o:p abp="387"></o:p></span></span></div>
<div abp="388">
</div>
<div abp="389" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="390" lang="EN-GB"><o:p abp="391"><span abp="392" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="393">
</div>
<div abp="394" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="395" style="font-family: Calibri;"><b abp="396"><span abp="397" lang="EN-GB">In the space of six years, house prices almost tripled</span></b><span abp="398" lang="EN-GB">. Then came the housing crash, which coincided with the crash in the
Japanese stock market. Today, house prices are 67% below what they were at
their peak, in 1990. </span></span></div>
<div abp="399">
</div>
<div abp="400" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="401" lang="EN-GB"><span abp="402" style="font-family: Calibri;">However, according to the Japanese land registry, the fall in house
prices is levelling out. <b abp="403">Condominium prices</b> (in olive green) have staged
a steady recovery since early 2009, while the price of detached houses (in
blue) continues to fall: </span></span></div>
<div abp="404" style="text-align: center;">
</div>
<div abp="1064" class="separator" style="clear: both; text-align: center;">
<a abp="1065" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdWN6UsyxWnWkxsU908OW8UScH-jPqSehJuL7Dvt1pSh87jvNq-32p4Wi5PZ97acfydD8e483mqC-TfDjJAtG3_WwA_ieB-m0TrggtrZuesKpts2bIw8YLYZrvFAFhEkDF-SzA-aQjjdQ/s1600/Japanese+residential+property+prices+-+tochi.mlit.go.jp.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1066" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdWN6UsyxWnWkxsU908OW8UScH-jPqSehJuL7Dvt1pSh87jvNq-32p4Wi5PZ97acfydD8e483mqC-TfDjJAtG3_WwA_ieB-m0TrggtrZuesKpts2bIw8YLYZrvFAFhEkDF-SzA-aQjjdQ/s1600/Japanese+residential+property+prices+-+tochi.mlit.go.jp.jpg" height="297" width="400" /></a></div>
<div abp="405" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="412" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="413" style="font-family: Calibri;">Graph courtesy tochi.mlit.go.jp
website, click to enlarge<o:p abp="414"></o:p></span></span></div>
<div abp="415">
</div>
<div abp="416" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="417"><span abp="418" lang="EN-GB"><span abp="419" style="font-family: Calibri;"><span abp="1069" style="color: #4c1130;">The Japanese housing market has some special characteristics</span>:<o:p abp="420"></o:p></span></span></b></div>
<div abp="421">
</div>
<div abp="422" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="423" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="424" style="mso-list: Ignore;">Ø<span abp="425" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="426" dir="LTR"></span><span abp="427" lang="EN-GB"><span abp="428" style="font-family: Calibri;">Between 1990 and 2010, the number of households
has increased by 27%. Family units have become smaller and the population has
continued to grow.</span></span></div>
<div abp="429">
</div>
<div abp="430" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="431" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="432" style="mso-list: Ignore;">Ø<span abp="433" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="434" dir="LTR"></span><span abp="435" lang="EN-GB"><span abp="436" style="font-family: Calibri;">The decline in the size of families means that
apartments are increasingly in demand, at the expense of family houses.</span></span></div>
<div abp="437">
</div>
<div abp="438" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="439" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="440" style="mso-list: Ignore;">Ø<span abp="441" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="442" dir="LTR"></span><span abp="443" lang="EN-GB"><span abp="444" style="font-family: Calibri;">The rental sector at about 36% of households is
large, more than double the UK's.</span></span></div>
<div abp="445">
</div>
<div abp="446" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="447" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="448" style="mso-list: Ignore;">Ø<span abp="449" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="450" dir="LTR"></span><span abp="451" lang="EN-GB"><span abp="452" style="font-family: Calibri;">Housing has a short lifespan. People are
concerned about how older buildings resist earthquakes and there is a fetish
for things new. Concrete buildings are often replaced after thirty years or so.
Then, the residual value of the property is its land value less the cost of
demolition. </span></span></div>
<div abp="453">
</div>
<div abp="454" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="455" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="456" style="mso-list: Ignore;">Ø<span abp="457" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="458" dir="LTR"></span><span abp="459" lang="EN-GB"><span abp="460" style="font-family: Calibri;">10-year mortgage interest rates are at an
all-time low of 1.2% (as set by The Bank of Tokyo-Mitsubishi UFJ, Japan's
largest mortgage lender).</span></span></div>
<div abp="461">
</div>
<div abp="462" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="463" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="464" style="mso-list: Ignore;">Ø<span abp="465" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="466" dir="LTR"></span><span abp="467" lang="EN-GB"><span abp="468" style="font-family: Calibri;">Gross rental yields average between 5 and 6% in
Tokyo for a 120m2 flat in a prime location. This is superior to London, where
gross yields for a similar flat average little over 2% (</span><a abp="469" href="http://www.globalpropertyguide.com/most-expensive-cities"><span abp="470" style="color: blue; font-family: Calibri;">Global Property
Guide</span></a><span abp="471" style="font-family: Calibri;">)</span></span></div>
<div abp="472">
</div>
<div abp="473" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="474" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="475" style="mso-list: Ignore;">Ø<span abp="476" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="477" dir="LTR"></span><span abp="478" lang="EN-GB"><span abp="479" style="font-family: Calibri;">Tenants pay their rents. One residential
property company reports that only 0.1% of its rents are in arrears.</span></span></div>
<div abp="480">
</div>
<div abp="481" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="482" style="font-family: Calibri;"><b abp="483"><span abp="484" lang="EN-GB">According to the recent </span></b><span abp="485" lang="EN-GB"><a abp="486" href="http://www.economist.com/news/finance-and-economics/21614167-easy-money-inflating-house-prices-across-much-globe-frothy-again?zid=295&ah=0bca374e65f2354d553956ea65f756e0"><b abp="487"><i abp="488"><span abp="489" style="color: blue;">Economist
</span></i><span abp="490" style="color: blue;">survey of global property</span></b></a>, Japan's house prices are undervalued by
37% when compared to rents and by 39% when compared to incomes. Japanese housing
is the most undervalued of the 23 countries selected for the survey. </span></span></div>
<div abp="491">
</div>
<div abp="492" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="493"><span abp="494" lang="EN-GB"><span abp="495" style="font-family: Calibri;"><span abp="1070" style="color: #4c1130;">The value of the Yen<o:p abp="1071"></o:p></span></span></span></b></div>
<div abp="497">
</div>
<div abp="498" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="499" style="font-family: Calibri;"><b abp="500"><span abp="501" lang="EN-GB">The yen reached its all-time high against the pound in January 2012</span></b><span abp="502" lang="EN-GB">. Since then it has devalued by 32%, and one pound currently buys 173
yen. The yen has not been cheaper in sterling terms for the last six years:</span></span></div>
<div abp="503" style="text-align: center;">
</div>
<div abp="1072" class="separator" style="clear: both; text-align: center;">
<a abp="1073" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjd_lNYFB93QXvz73OJ7GRML3ZYVI8BdOze_sGP4SQZTs91IIqqlCXAENvqXHKWq6WRyR0EZCdBDpinlmyO7GA-lrcVp8BGrTSNKv83QH1R0YNKjXIYY6tWu8QJ2NKJCAJyLTl2EJ5nHeg/s1600/Japanese+Yens+per+pound+yahoo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1074" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjd_lNYFB93QXvz73OJ7GRML3ZYVI8BdOze_sGP4SQZTs91IIqqlCXAENvqXHKWq6WRyR0EZCdBDpinlmyO7GA-lrcVp8BGrTSNKv83QH1R0YNKjXIYY6tWu8QJ2NKJCAJyLTl2EJ5nHeg/s1600/Japanese+Yens+per+pound+yahoo.png" height="173" width="400" /></a></div>
<div abp="504" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: center;">
<span abp="505" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="506" alt="Japanese Yens per pound yahoo.png" id="Picture_x0020_2" o:spid="_x0000_i1028" style="height: 185.25pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="507" style="font-family: Calibri;">
<v:imagedata abp="508" o:title="Japanese Yens per pound yahoo" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></span></v:shape></span><span abp="511" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="512" style="font-family: Calibri;">Graph of yen per GB pound courtesy
Yahoo, click to enlarge<o:p abp="513"></o:p></span></span></div>
<div abp="514">
</div>
<div abp="515" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="516" style="font-family: Calibri;"><b abp="517"><span abp="518" lang="EN-GB">The weakness of the yen has more than one explanation</span></b><span abp="519" lang="EN-GB">. </span></span></div>
<div abp="520">
</div>
<div abp="521" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="522" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="523" style="mso-list: Ignore;"><span abp="524" style="font-family: Calibri;">1.</span><span abp="525" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="526" dir="LTR"></span><span abp="527" style="font-family: Calibri;"><b abp="528"><span abp="529" lang="EN-GB">After
the March 2011 tsunami</span></b><span abp="530" lang="EN-GB"> and the meltdown at the
nuclear reactor at Fukushima, the government closed down all the country's
nuclear power stations. Japan had to import fossil fuels to compensate for the
26% of the nation's energy from nuclear plants that had been closed. Japan's traditional
balance of payments surplus turned to a deficit in late 2013.</span></span></div>
<div abp="531">
</div>
<div abp="532" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="533" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="534" style="mso-list: Ignore;"><span abp="535" style="font-family: Calibri;">2.</span><span abp="536" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="537" dir="LTR"></span><span abp="538" style="font-family: Calibri;"><b abp="539"><span abp="540" lang="EN-GB">One of <i abp="541">Abenomics</i>
key policies was to reduce the value of the yen</span></b><span abp="542" lang="EN-GB"> by
monetary stimulus that included reducing interest rates to near zero. This was
designed to favour exporters and encourage investment in capital equipment. </span></span></div>
<div abp="543">
</div>
<div abp="544" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="545" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="546" style="mso-list: Ignore;"><span abp="547" style="font-family: Calibri;">3.</span><span abp="548" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="549" dir="LTR"></span><span abp="550" lang="EN-GB"><span abp="551" style="font-family: Calibri;">The
combination of a falling currency and ultra-low interest rates stimulated the <b abp="552">carry
trade. </b>Speculators borrow in yen to invest in higher yielding securities in
other countries, thereby further depressing the value of the Japanese currency.
</span></span></div>
<div abp="553">
</div>
<div abp="554" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="555" style="font-family: Calibri;"><b abp="556"><span abp="557" lang="EN-GB">While Japan is restarting most of its nuclear power plants</span></b><span abp="558" lang="EN-GB"> and the balance of payments is expected to return to surplus, easy
money, low interest rates and the carry trade will probably continue. The yen
is unlikely to stage a comeback soon. While a cheap yen would depress the value
of residential property when translated into sterling, it also seems to be
reviving the Japanese economy. This would lead to a recovery in house prices. </span></span></div>
<div abp="559">
</div>
<div abp="560" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="561"><span abp="562" lang="EN-GB"><span abp="563" style="font-family: Calibri;"><span style="color: #4c1130;">Conclusion<o:p abp="564"></o:p></span></span></span></b></div>
<div abp="565">
</div>
<div abp="566" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="567" style="font-family: Calibri;"><b abp="568"><span abp="569" lang="EN-GB">With healthy yields and prices that are low by historical standards</span></b><span abp="570" lang="EN-GB">, Japanese residential property provides a good alternative
investment for the individual investor. But one wouldn't want more than about
5% of one's portfolio invested in Japanese property. </span></span></div>
<div abp="571">
</div>
<div abp="572" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="573" style="font-family: Calibri;"><b abp="574"><span abp="575" lang="EN-GB">It is one thing to identify a plausible investment in an alternative
asset class</span></b><span abp="576" lang="EN-GB">, but it is another thing to identify a
suitable investment vehicle for the individual investor. UK investors have an
investment company that offers a straightforward way into the housing market in
Japan. It is the<b abp="577"> Japanese Residential Investment Company.<o:p abp="578"></o:p></b></span></span></div>
<div abp="579">
</div>
<div abp="580" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="581" lang="EN-GB"><span abp="582" style="font-family: Calibri;">---------------------------------------------------------------------------------------------------------------------------</span></span></div>
<div abp="583">
</div>
<div abp="584" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="585" lang="EN-GB"><o:p abp="586"><span abp="587" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="588">
</div>
<h3 abp="589" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="591" lang="EN-GB"><span abp="1109" style="color: #660000;">The
Japanese Residential Investment Company LTD (JRIC)<o:p abp="1110"></o:p></span></span></h3>
<div abp="594">
</div>
<div abp="595" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="596"><span abp="597" lang="EN-GB"><o:p abp="598"><span abp="599" style="font-family: Calibri;"> </span></o:p></span></b><div abp="1111" class="separator" style="clear: both; text-align: center;">
<b abp="596"><span abp="599" style="font-family: Calibri;"><a abp="1112" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCvFGrdIH337emK4lWLbYo5W1wWEmmScrTw3N85vCG3ofjdkJJwu2OtrRCFZ6e6YxFBve4gqf1Y_xU-kJtKwALqqHTehYu9U2hKebaR0DIx2EgX1ttxqlPZdiAan6YmGKpR7gRYVIReho/s1600/JRIC+Spacia+Akihabara.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1113" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiCvFGrdIH337emK4lWLbYo5W1wWEmmScrTw3N85vCG3ofjdkJJwu2OtrRCFZ6e6YxFBve4gqf1Y_xU-kJtKwALqqHTehYu9U2hKebaR0DIx2EgX1ttxqlPZdiAan6YmGKpR7gRYVIReho/s1600/JRIC+Spacia+Akihabara.jpg" height="200" width="150" /></a></span></b></div>
<br />
<div abp="600" style="text-align: center;">
<span abp="608" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="609" style="font-family: Calibri;">Spacia Akihabara, Tokyo, courtesy
JRIC</span></span></div>
<div abp="600" style="text-align: center;">
<span abp="608" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="609" style="font-family: Calibri;"><o:p abp="610"></o:p></span></span> </div>
<div abp="611">
</div>
<div abp="612" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="613" style="font-family: Calibri;"><b abp="614"><span abp="615" lang="EN-GB">The Japanese Residential Investment Company (JRIC) was launched in
2006</span></b><span abp="616" lang="EN-GB"> to invest in completed units of residential
housing in Japan, which it then rents out. The company is based in Guernsey and
is currently listed on the Alternative Investment Market (AIM). In June it
announced its intention to move its listing to the London Stock Exchange's Main
Market.</span></span></div>
<div abp="617">
</div>
<div abp="618" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="619" style="font-family: Calibri;"><b abp="620"><span abp="621" lang="EN-GB">At the offer price of 56p, the company trades on an 8% discount to
net asset value and yields 6.4%. </span></b><span abp="622" lang="EN-GB">My valuation model
does not work well for property companies.<b abp="623"><o:p abp="624"></o:p></b></span></span></div>
<div abp="625">
</div>
<div abp="626" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="627" style="font-family: Calibri;"><b abp="628"><span abp="629" lang="EN-GB">JRIC is run as an investment trust</span></b><span abp="630" lang="EN-GB">, with
a board of directors appointing an investment advisor to</span><span abp="631" lang="EN-GB" style="font-size: 9pt; line-height: 115%;"> </span><span abp="632" lang="EN-GB">identify
suitable properties for investment and to manage the estate. The advisor, K.K.
Halifax Asset Management, is a sister company of Colliers International which
was established in Japan in 1952. </span></span></div>
<div abp="633">
</div>
<div abp="634" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="635" style="font-family: Calibri;"><b abp="636"><span abp="637" lang="EN-GB">The company owns 58 apartment buildings</span></b><span abp="638" lang="EN-GB">,
the largest of which is Spacia Akihara in Tokyo. 94% were built in the last 5
to 10 years and 67% of the units are either studio or one-bedroom apartments. <b abp="639">JRIC</b>
set out to concentrate on the main conurbations, where demand is highest, and
59% of its space is in Tokyo, while a further 29% is to be found in Osaka and
Nagoya. All their buildings comply with the latest (1981) anti-seismic building
standards. </span></span></div>
<div abp="640">
</div>
<div abp="641" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="642" style="font-family: Calibri;"><b abp="643"><span abp="644" lang="EN-GB">Occupancy rates are high</span></b><span abp="645" lang="EN-GB">, at 95.1%, rent
arrears are just 0.1%, and the largest single tenant accounts for just 0.4% of <b abp="646">JRIC</b>'s
rental area. Still <b abp="647">JRIC</b> had a rocky start. Soon after its launch asset
prices were hit by the financial crisis and, as it was highly leveraged, it was
forced into a deeply discounted rights issue. This is discussed by <a abp="648" href="http://citywire.co.uk/money/this-japanese-property-company-could-be-back-in-the-fast-lane/a609314"><i abp="649"><span abp="650" style="color: blue;">City
Wire</span></i></a> in a 2012 article. <b abp="651">The shares (20-day moving average in red)
crashed to one-third of their issue price:</b></span></span></div>
<div abp="641" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="642" style="font-family: Calibri;"><span abp="645" lang="EN-GB"><b abp="651"><o:p abp="652"></o:p></b></span></span> </div>
<div abp="653">
</div>
<div abp="654" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="655" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="656" alt="JRIC share priceVs FTSE 100 20-day moving average.png" id="Picture_x0020_7" o:spid="_x0000_i1026" style="height: 187.5pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="657" style="font-family: Calibri;">
<v:imagedata abp="658" o:title="JRIC share priceVs FTSE 100 20-day moving average" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image006.png">
</v:imagedata></span></v:shape></span><div abp="1134" class="separator" style="clear: both; text-align: center;">
<span abp="657" style="font-family: Calibri;"><a abp="1135" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiR_Ad1YMAunN76dpY80M-ocOSpmyEfOao8O20wI8TzYrG4ff-mlvkVX4eN21gURfm_cBOWo_HF5UzLmClGEmufXCyM6lLft2H54khr7qz67wQ_KJPCfs5b88c_tmeBFatCRZp5kqzHVII/s1600/JRIC+share+priceVs+FTSE+100+20-day+moving+average.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1136" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiR_Ad1YMAunN76dpY80M-ocOSpmyEfOao8O20wI8TzYrG4ff-mlvkVX4eN21gURfm_cBOWo_HF5UzLmClGEmufXCyM6lLft2H54khr7qz67wQ_KJPCfs5b88c_tmeBFatCRZp5kqzHVII/s1600/JRIC+share+priceVs+FTSE+100+20-day+moving+average.png" height="176" width="400" /></a></span></div>
<br />
<div abp="659" style="text-align: center;">
<span abp="661" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="662" style="font-family: Calibri;">20 day moving average JRIC share
price Vs FTSE 100, courtesy Yahoo, click to enlarge</span></span></div>
<div abp="659" style="text-align: center;">
<span abp="661" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="662" style="font-family: Calibri;"><o:p abp="663"></o:p></span></span> </div>
<div abp="664">
</div>
<div abp="665" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="666" style="font-family: Calibri;"><b abp="667"><span abp="668" lang="EN-GB">JRIC shareholders were hit by falling asset prices</span></b><span abp="669" lang="EN-GB"> compounded by a yawning discount to the net asset value of its
properties. This discount, briefly exceeding 60%, has now largely disappeared
as investor confidence in the company has returned.</span></span></div>
<div abp="670" style="text-align: center;">
</div>
<div abp="1157" class="separator" style="clear: both; text-align: center;">
<a abp="1158" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeJe4c_wnZdtubxIc9EvaaqlTb5yBvM1P0QCD7CU0r0owkbeZsMGsZpqLMMHMfDIO1BJyB1_A3i7uzZGeosce1-4afZooMY5C4UQc_iIjcm6zwTRaMcdv09jqjZGRvMIMLzp4oYg6gNnU/s1600/JRIC+premium,discount+historical.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1159" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeJe4c_wnZdtubxIc9EvaaqlTb5yBvM1P0QCD7CU0r0owkbeZsMGsZpqLMMHMfDIO1BJyB1_A3i7uzZGeosce1-4afZooMY5C4UQc_iIjcm6zwTRaMcdv09jqjZGRvMIMLzp4oYg6gNnU/s1600/JRIC+premium,discount+historical.png" height="137" width="400" /></a></div>
<div abp="671" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: center;">
<span abp="672" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="673" alt="JRIC premium,discount historical.png" id="Picture_x0020_8" o:spid="_x0000_i1025" style="height: 147.75pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="674" style="font-family: Calibri;">
<v:imagedata abp="675" o:title="JRIC premium,discount historical" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image007.png">
</v:imagedata></span></v:shape></span><span abp="678" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="679" style="font-family: Calibri;">JRCI Premium/discount to NAV,
courtesy the <i abp="680">Investors Chronicle</i>, click to enlarge<o:p abp="681"></o:p></span></span></div>
<div abp="682">
</div>
<div abp="683" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="684"><span abp="685" lang="EN-GB"><span abp="686" style="font-family: Calibri;">In terms of yen, JRIC is doing quite well. Consider:<o:p abp="687"></o:p></span></span></b></div>
<div abp="688">
</div>
<div abp="689" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="690" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="691" style="mso-list: Ignore;">·<span abp="692" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="693" dir="LTR"></span><span abp="694" style="font-family: Calibri;"><b abp="695"><span abp="696" lang="EN-GB">By
being wholly invested in modern apartment blocks</span></b><span abp="697" lang="EN-GB">, the
type of residential property in most demand, <b abp="698">JRIC</b>'s net asset value
increased by 7% in 2013 and by an annualised 4% in the first half of 2014. </span></span></div>
<div abp="699">
</div>
<div abp="700" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="701" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="702" style="mso-list: Ignore;">·<span abp="703" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="704" dir="LTR"></span><span abp="705" style="font-family: Calibri;"><b abp="706"><span abp="707" lang="EN-GB">JRIC</span></b><span abp="708" lang="EN-GB"> made a profit of 2.1 million pounds on disposals in 2013, which
represented a 24% premium to their assessed value.</span></span></div>
<div abp="709">
</div>
<div abp="710" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="711" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="712" style="mso-list: Ignore;">·<span abp="713" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="714" dir="LTR"></span><span abp="715" style="font-family: Calibri;"><b abp="716"><span abp="717" lang="EN-GB">Operating
earnings per share in yen</span></b><span abp="718" lang="EN-GB"> from the rental business
declined by 3.5% in 2013, but in the first half of 2014 it exceeded the
comparative 2013 period by 21%. </span></span></div>
<div abp="719">
</div>
<div abp="720" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="721" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="722" style="mso-list: Ignore;">·<span abp="723" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="724" dir="LTR"></span><span abp="725" style="font-family: Calibri;"><b abp="726"><span abp="727" lang="EN-GB">The
dividend payout</span></b><span abp="728" lang="EN-GB"> of 21 million pounds in the past
four years has been amply covered by net operating cash flow of 31 million
pounds.</span></span></div>
<div abp="729">
</div>
<div abp="730" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l3 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="731" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="732" style="mso-list: Ignore;">·<span abp="733" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="734" dir="LTR"></span><span abp="735" style="font-family: Calibri;"><b abp="736"><span abp="737" lang="EN-GB">Loan to
value is 59%,</span></b><span abp="738" lang="EN-GB"> which is 12 percentage points below
where it was pre-crisis. The company has reduced its weighted cost of
borrowings to 0.9%, which gives it a huge margin compared to rental yields. In 2014,
<b abp="739">JRIC </b>took out a seven-year 40-million pound loan (denominated in yen)
with a maximum blended interest cost of 0.9%.</span></span></div>
<div abp="740">
</div>
<div abp="741" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="742" style="font-family: Calibri;"><b abp="743"><span abp="744" lang="EN-GB">As the investment advisor receives a commission of 0.5% on gross
assets and the cost of borrowing is so low</span></b><span abp="745" lang="EN-GB">, there
is always the temptation to borrow more. Hopefully the directors are now much
more cautious than they were in 2008, and if not, five institutional investors,
holding 55% of the company's shares, are there to remind them. <b abp="746">Ruffer</b>,
known for its total return fund, has held a major holding in the company since
2007 and now owns almost one-quarter of <b abp="747">JRIC</b>'s outstanding shares.<span abp="748" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="749">
</div>
<div abp="750" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="751" style="font-family: Calibri;"><b abp="752"><span abp="753" lang="EN-GB">As an alternative investment</span></b><span abp="754" lang="EN-GB"> to stocks,
bonds and cash, <b abp="755">JRIC</b> offers the individual investor some real diversity:</span></span></div>
<div abp="756">
</div>
<div abp="757" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="758" lang="EN-GB"><span abp="759" style="font-family: Calibri;">1. <b abp="760">Residential property is less volatile than commercial.</b> <b abp="761">JRIC's</b>
investment in apartment buildings puts it into the most favoured sector of the
residential market. And by renting solely to individual tenants, the risk of
default - tiny in any event in Japan - is further reduced. That <b abp="762">Ruffer</b>
holds 23% of its outstanding shares is an indication that <b abp="763">JRIC</b> offers
the investor a return that is largely independent of the financial markets.</span></span></div>
<div abp="764">
</div>
<div abp="765" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="766" lang="EN-GB"><span abp="767" style="font-family: Calibri;">2. <b abp="768">Japanese housing is cheap</b>, by historical standards, and at
some time it seems likely to recover.</span></span></div>
<div abp="769">
</div>
<div abp="770" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="771" lang="EN-GB"><span abp="772" style="font-family: Calibri;">3. <b abp="773">The combination of a 6.4% running yield and the 8% discount to
net asset value</b> is far superior to the average for its Japanese equivalents
that yield 3.4% and trade at a 34% premium to NAV. Both the yield and the
discount offer protection against adverse movements in the residential property
market and borrowing costs.</span></span></div>
<div abp="774">
</div>
<div abp="775" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="776" lang="EN-GB"><span abp="777" style="font-family: Calibri;">4. <b abp="778">While the yen</b> might well remain weak for some time, it is
likely to recover at some point, which would boost the value of <b abp="779">JRIC</b>'s
portfolio and earnings in sterling.</span></span></div>
<div abp="780">
</div>
<div abp="781" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="782" lang="EN-GB"><span abp="783" style="font-family: Calibri;">5. <b abp="784">The company's move to the LSE's Main Market </b>will undoubtedly
be accompanied by further raising of capital to expand the business. This could
be positive for shareholders. Its relatively small size - <b abp="785">JRIC</b> is
capitalised at 117 million pounds - and its listing on AIM might explain part
of the reason for its lowly valuation. </span></span></div>
<div abp="786">
</div>
<div abp="787" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="788"><span abp="789" lang="EN-GB"><span abp="790" style="font-family: Calibri;">Investors will note that the risks are:<o:p abp="791"></o:p></span></span></b></div>
<div abp="792">
</div>
<div abp="793" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="794" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="795" style="mso-list: Ignore;">Ø<span abp="796" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="797" dir="LTR"></span><span abp="798" style="font-family: Calibri;"><b abp="799"><span abp="800" lang="EN-GB">JRIC does not hedge the yen - pound exchange
rate</span></b><span abp="801" lang="EN-GB">. Further yen devaluations would reduce both the
NAV and earnings of the company's portfolio in sterling.</span></span></div>
<div abp="802">
</div>
<div abp="803" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="804" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="805" style="mso-list: Ignore;">Ø<span abp="806" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="807" dir="LTR"></span><span abp="808" style="font-family: Calibri;"><b abp="809"><span abp="810" lang="EN-GB">If <i abp="811">Abenomics </i>fails</span></b><span abp="812" lang="EN-GB">, the Japanese economy could slip back into deflation, which could
hit both rental yields and property prices.</span></span></div>
<div abp="813">
</div>
<div abp="814" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="815" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="816" style="mso-list: Ignore;">Ø<span abp="817" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="818" dir="LTR"></span><span abp="819" style="font-family: Calibri;"><b abp="820"><span abp="821" lang="EN-GB">The Japanese place little value on housing
that is over thirty years old</span></b><span abp="822" lang="EN-GB">. As <b abp="823">JRIC</b>'s
properties age, they become less and less valuable until they have to be
replaced. This cost is not built into <b abp="824">JRIC</b>'s accounting. However,
"The fair values of investment property are determined annually by
independent qualified valuers using the income capitalisation basis and the
discounted cash flow method." (2013 Annual Report)</span></span></div>
<div abp="825">
</div>
<div abp="826" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="827" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="828" style="mso-list: Ignore;">Ø<span abp="829" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="830" dir="LTR"></span><span abp="831" style="font-family: Calibri;"><b abp="832"><span abp="833" lang="EN-GB">Interest rates are at an historic low</span></b><span abp="834" lang="EN-GB">. Given the high public debt to GDP ratio, it is likely that
borrowing costs will rise once the present loose monetary policy ends. This
would reduce the company's operating earnings. </span></span></div>
<div abp="835">
</div>
<div abp="836" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="837" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="838" style="mso-list: Ignore;">Ø<span abp="839" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="840" dir="LTR"></span><span abp="841" style="font-family: Calibri;"><b abp="842"><span abp="843" lang="EN-GB">JRIC over-extended itself</span></b><span abp="844" lang="EN-GB"> before the financial crash of 2008-9, with disastrous results for
its shareholders. Something similar could always happen again. </span></span></div>
<div abp="845">
</div>
<div abp="846" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<i abp="847"><span abp="848" lang="EN-GB"><span abp="849" style="font-family: Calibri;">Disclosure: I hold a long position in JRIC.<o:p abp="850"></o:p></span></span></i></div>
<div abp="851">
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com4tag:blogger.com,1999:blog-6123577473607160262.post-9270848288657727562014-10-06T19:09:00.000+01:002014-10-06T19:18:42.319+01:00<div abp="1265">
</div>
<h3 abp="1266" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1267" lang="EN-GB"><span abp="1268" style="color: #20124d;">Commercial
Property - time to invest?<o:p abp="1269"></o:p></span></span></h3>
<div abp="1270">
</div>
<h4 abp="1271" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1272" lang="EN-GB"><span abp="1273" style="color: #660000;">And
UK Commercial Property Trust PLC</span></span></h4>
<h4 abp="1271" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1272" lang="EN-GB"><span abp="1273" style="color: #660000;"><o:p abp="1274"></o:p></span></span> </h4>
<div abp="1275">
</div>
<div abp="1276" class="separator" style="clear: both; text-align: center;">
<a abp="1277" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ48J9jED_z60uHK0qYRxRddMllRsjU_AtVp4g71T5FKHheldvrKgTcIdDqzYBdDqqDAvz9vOcgEa5hRx5Zuamip2RvP9ZFiiQcMbqb717AwqjAaOuTULU2FRaXKeioHh00AE-lq-SgEs/s1600/one+canada+square+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1278" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ48J9jED_z60uHK0qYRxRddMllRsjU_AtVp4g71T5FKHheldvrKgTcIdDqzYBdDqqDAvz9vOcgEa5hRx5Zuamip2RvP9ZFiiQcMbqb717AwqjAaOuTULU2FRaXKeioHh00AE-lq-SgEs/s1600/one+canada+square+wiki.jpg" height="320" width="179" /></a></div>
<div abp="1279" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<div abp="623">
<span abp="1302" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1303" style="font-family: Calibri;">One
Canada Square, courtesy Wikipedia<o:p abp="1304"></o:p></span></span></div>
</div>
<div abp="1305">
</div>
<div abp="1306" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<div abp="629">
<span abp="1307" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1308"><span abp="1309" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1310">
</div>
<div abp="1311" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="635">
<span abp="1312" style="font-family: Calibri;"><b abp="1313"><span abp="1314" lang="EN-GB">Commercial property can be a risky investment</span></b><span abp="1315" lang="EN-GB">. Canary Wharf's One Canada Square bankrupted its developer, <b abp="1316">Olympia
& York</b>. And the financial crisis took a huge toll on property
companies. The funding crisis forced many companies into emergency rights
issues and the hasty sale of properties. As a result, commercial property
prices plunged by 44% between June 2007 and July 2009. Some property companies
went into liquidation. Shares in even the largest, <b abp="1317">British Land</b> and <b abp="1318">Land
Securities (Land),</b> lost 75% and 79% of their value respectively. </span></span></div>
</div>
<div abp="1319">
</div>
<div abp="1320" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="645">
<span abp="1321" style="font-family: Calibri;"><b abp="1322"><span abp="1323" lang="EN-GB">Excessive leverage</span></b><span abp="1324" lang="EN-GB"> exaggerated the fall
in property shares. When <b abp="1325">Lands'</b> net assets fell by 58%, net debt, which
in March 2007 seemed a reasonable 48% of net assets, suddenly became 131% of
net assets. The company had to sell property in a falling market. And, to avoid
breaking its loan covenants, <b abp="1326">Land</b> resorted to a 756 million pound rights
issue in February 2009 at the bottom of the stock market.</span></span></div>
</div>
<div abp="1327">
</div>
<div abp="1328" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="654">
<span abp="1329" lang="EN-GB"><span abp="1330" style="font-family: Calibri;">Commercial property prices staged a partial recovery, but the damage
to property companies was long lasting. <b abp="1331">Land's</b> share price is still 56%
below its pre-crisis peak.</span></span></div>
</div>
<div abp="1332">
</div>
<div abp="1333" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="660">
<b abp="1334"><span abp="1335" lang="EN-GB"><span abp="1336" style="font-family: Calibri;">However, under normal conditions, commercial property offers the
long-term investor a steady and growing source of income via rental reversions
plus an increasing capital value - data from IPD.com. <o:p abp="1337"></o:p></span></span></b></div>
</div>
<div abp="1338">
</div>
<table abp="1339" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 26.7pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1340">
<tr abp="1341" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1342" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 155.9pt;" valign="top" width="208"><div abp="1343" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="671">
<b abp="1344"><span abp="1345" lang="EN-GB"><span abp="1346" style="font-family: Calibri;">%
annual return on capital*<o:p abp="1347"></o:p></span></span></b></div>
</div>
</td>
<td abp="1348" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 105.5pt;" valign="top" width="141"><div abp="1349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="678">
<b abp="1350"><span abp="1351" lang="EN-GB"><span abp="1352" style="font-family: Calibri;"><span abp="1353" style="mso-spacerun: yes;"> </span>1980 to 2013<o:p abp="1354"></o:p></span></span></b></div>
</div>
</td>
<td abp="1355" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 114.2pt;" valign="top" width="152"><div abp="1356" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="686">
<b abp="1357"><span abp="1358" lang="EN-GB"><span abp="1359" style="font-family: Calibri;"><span abp="1360" style="mso-spacerun: yes;"> </span>Last 10 years<o:p abp="1361"></o:p></span></span></b></div>
</div>
</td>
</tr>
<tr abp="1362" style="mso-yfti-irow: 1;">
<td abp="1363" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 155.9pt;" valign="top" width="208"><div abp="1364" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="695">
<b abp="1365"><span abp="1366" lang="EN-GB"><span abp="1367" style="font-family: Calibri;">All
property<o:p abp="1368"></o:p></span></span></b></div>
</div>
</td>
<td abp="1369" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 105.5pt;" valign="top" width="141"><div abp="1370" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="702">
<b abp="1371"><span abp="1372" lang="EN-GB"><span abp="1373" style="font-family: Calibri;"><span abp="1374" style="mso-spacerun: yes;"> </span>9.0%<o:p abp="1375"></o:p></span></span></b></div>
</div>
</td>
<td abp="1376" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 114.2pt;" valign="top" width="152"><div abp="1377" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="710">
<b abp="1378"><span abp="1379" lang="EN-GB"><span abp="1380" style="font-family: Calibri;"><span abp="1381" style="mso-spacerun: yes;"> </span>6.3%<span abp="1382" style="mso-spacerun: yes;"> </span><o:p abp="1383"></o:p></span></span></b></div>
</div>
</td>
</tr>
<tr abp="1384" style="mso-yfti-irow: 2;">
<td abp="1385" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 155.9pt;" valign="top" width="208"><div abp="1386" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="720">
<b abp="1387"><span abp="1388" lang="EN-GB"><span abp="1389" style="font-family: Calibri;">Property
equities<o:p abp="1390"></o:p></span></span></b></div>
</div>
</td>
<td abp="1391" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 105.5pt;" valign="top" width="141"><div abp="1392" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="727">
<b abp="1393"><span abp="1394" lang="EN-GB"><span abp="1395" style="font-family: Calibri;"><span abp="1396" style="mso-spacerun: yes;"> </span>n.a.<o:p abp="1397"></o:p></span></span></b></div>
</div>
</td>
<td abp="1398" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 114.2pt;" valign="top" width="152"><div abp="1399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="735">
<b abp="1400"><span abp="1401" lang="EN-GB"><span abp="1402" style="font-family: Calibri;"><span abp="1403" style="mso-spacerun: yes;"> </span>4.0%<o:p abp="1404"></o:p></span></span></b></div>
</div>
</td>
</tr>
<tr abp="1405" style="mso-yfti-irow: 3;">
<td abp="1406" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 155.9pt;" valign="top" width="208"><div abp="1407" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="744">
<b abp="1408"><span abp="1409" lang="EN-GB"><span abp="1410" style="font-family: Calibri;">Equities<o:p abp="1411"></o:p></span></span></b></div>
</div>
</td>
<td abp="1412" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 105.5pt;" valign="top" width="141"><div abp="1413" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="751">
<b abp="1414"><span abp="1415" lang="EN-GB"><span abp="1416" style="font-family: Calibri;"><span abp="1417" style="mso-spacerun: yes;"> </span>11.6% <o:p abp="1418"></o:p></span></span></b></div>
</div>
</td>
<td abp="1419" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 114.2pt;" valign="top" width="152"><div abp="1420" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="759">
<b abp="1421"><span abp="1422" lang="EN-GB"><span abp="1423" style="font-family: Calibri;"><span abp="1424" style="mso-spacerun: yes;"> </span>8.0%<o:p abp="1425"></o:p></span></span></b></div>
</div>
</td>
</tr>
<tr abp="1426" style="mso-yfti-irow: 4;">
<td abp="1427" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 155.9pt;" valign="top" width="208"><div abp="1428" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="768">
<span abp="1429" style="font-family: Calibri;"><b abp="1430"><span abp="1431" lang="EN-GB">UK
Gilts </span></b><b abp="1432"><span abp="1433" lang="EN-GB" style="font-size: 9pt;">(Barclays equity/gilt
study)</span><span abp="1434" lang="EN-GB"><o:p abp="1435"></o:p></span></b></span></div>
</div>
</td>
<td abp="1436" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 105.5pt;" valign="top" width="141"><div abp="1437" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="778">
<b abp="1438"><span abp="1439" lang="EN-GB"><span abp="1440" style="font-family: Calibri;"><span abp="1441" style="mso-spacerun: yes;"> </span>10.5%<o:p abp="1442"></o:p></span></span></b></div>
</div>
</td>
<td abp="1443" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 114.2pt;" valign="top" width="152"><div abp="1444" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="786">
<b abp="1445"><span abp="1446" lang="EN-GB"><span abp="1447" style="font-family: Calibri;"><span abp="1448" style="mso-spacerun: yes;"> </span>5.8%<o:p abp="1449"></o:p></span></span></b></div>
</div>
</td>
</tr>
<tr abp="1450" style="mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td abp="1451" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 155.9pt;" valign="top" width="208"><div abp="1452" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="795">
<b abp="1453"><span abp="1454" lang="EN-GB"><span abp="1455" style="font-family: Calibri;">Inflation<o:p abp="1456"></o:p></span></span></b></div>
</div>
</td>
<td abp="1457" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 105.5pt;" valign="top" width="141"><div abp="1458" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="802">
<b abp="1459"><span abp="1460" lang="EN-GB"><span abp="1461" style="font-family: Calibri;"><span abp="1462" style="mso-spacerun: yes;"> </span>4.0%<o:p abp="1463"></o:p></span></span></b></div>
</div>
</td>
<td abp="1464" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 114.2pt;" valign="top" width="152"><div abp="1465" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="810">
<b abp="1466"><span abp="1467" lang="EN-GB"><span abp="1468" style="font-family: Calibri;"><span abp="1469" style="mso-spacerun: yes;"> </span>3.3%<o:p abp="1470"></o:p></span></span></b></div>
</div>
</td>
</tr>
</tbody></table>
<div abp="1471">
</div>
<div abp="1472" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="818">
<span abp="1473" style="font-family: Calibri;"><b abp="1474"><span abp="1475" lang="EN-GB"><span abp="1476" style="mso-tab-count: 1;"> </span></span></b><span abp="1477" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">*Capital plus reinvested
income. The all property figures are based on gross returns, not net.<o:p abp="1478"></o:p></span></span></div>
</div>
<div abp="1479">
</div>
<div abp="1480" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="827">
<span abp="1481" style="font-family: Calibri;"><b abp="1482"><span abp="1483" lang="EN-GB"></span></b></span> </div>
</div>
<div abp="1480" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="832">
<span abp="1481" style="font-family: Calibri;"><b abp="1482"><span abp="1483" lang="EN-GB">In the wake of the financial crisis</span></b><span abp="1484" lang="EN-GB">, leases
were broken or renewed at lower rentals.<b abp="1485"> Land Securities, </b>which provides
like-for-like rental returns for its own properties, suggests that rents, after
five years of decline, have started to recover:</span></span></div>
</div>
<div abp="1486">
</div>
<table abp="1487" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-table-layout-alt: fixed; mso-yfti-tbllook: 1184; width: 558px;">
<tbody abp="1488">
<tr abp="1489" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1490" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1491" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="844">
<span abp="1492" lang="EN-GB"><span abp="1493" style="font-family: Calibri;">Year
to March</span></span></div>
</div>
</td>
<td abp="1494" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.55pt;" valign="top" width="57"><div abp="1495" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="849">
<span abp="1496" lang="EN-GB"><span abp="1497" style="font-family: Calibri;">2008</span></span></div>
</div>
</td>
<td abp="1498" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.5pt;" valign="top" width="57"><div abp="1499" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="854">
<span abp="1500" lang="EN-GB"><span abp="1501" style="font-family: Calibri;">2009</span></span></div>
</div>
</td>
<td abp="1502" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.65pt;" valign="top" width="66"><div abp="1503" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="859">
<span abp="1504" lang="EN-GB"><span abp="1505" style="font-family: Calibri;">2010</span></span></div>
</div>
</td>
<td abp="1506" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66"><div abp="1507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="864">
<span abp="1508" lang="EN-GB"><span abp="1509" style="font-family: Calibri;">2011</span></span></div>
</div>
</td>
<td abp="1510" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.5pt;" valign="top" width="57"><div abp="1511" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="869">
<span abp="1512" lang="EN-GB"><span abp="1513" style="font-family: Calibri;">2012</span></span></div>
</div>
</td>
<td abp="1514" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 47.9pt;" valign="top" width="64"><div abp="1515" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="874">
<span abp="1516" lang="EN-GB"><span abp="1517" style="font-family: Calibri;">2013</span></span></div>
</div>
</td>
<td abp="1518" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 44.25pt;" valign="top" width="59"><div abp="1519" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="879">
<span abp="1520" lang="EN-GB"><span abp="1521" style="font-family: Calibri;">2014</span></span></div>
</div>
</td>
</tr>
<tr abp="1522" style="mso-yfti-irow: 1;">
<td abp="1523" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1524" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="885">
<span abp="1525" lang="EN-GB"><span abp="1526" style="font-family: Calibri;">Rental
returns*</span></span></div>
</div>
</td>
<td abp="1527" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.55pt;" valign="top" width="57"><div abp="1528" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="890">
<b abp="1529"><span abp="1530" lang="EN-GB" style="color: #00b050;"><span abp="1531" style="font-family: Calibri;">+2%<o:p abp="1532"></o:p></span></span></b></div>
</div>
</td>
<td abp="1533" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.5pt;" valign="top" width="57"><div abp="1534" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="897">
<b abp="1535"><span abp="1536" lang="EN-GB" style="color: red;"><span abp="1537" style="font-family: Calibri;">-9%<o:p abp="1538"></o:p></span></span></b></div>
</div>
</td>
<td abp="1539" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.65pt;" valign="top" width="66"><div abp="1540" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="904">
<b abp="1541"><span abp="1542" lang="EN-GB" style="color: red;"><span abp="1543" style="font-family: Calibri;">-11%<o:p abp="1544"></o:p></span></span></b></div>
</div>
</td>
<td abp="1545" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66"><div abp="1546" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="911">
<b abp="1547"><span abp="1548" lang="EN-GB" style="color: red;"><span abp="1549" style="font-family: Calibri;">-2%<o:p abp="1550"></o:p></span></span></b></div>
</div>
</td>
<td abp="1551" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.5pt;" valign="top" width="57"><div abp="1552" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="918">
<b abp="1553"><span abp="1554" lang="EN-GB" style="color: red;"><span abp="1555" style="font-family: Calibri;">-1%<o:p abp="1556"></o:p></span></span></b></div>
</div>
</td>
<td abp="1557" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 47.9pt;" valign="top" width="64"><div abp="1558" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="925">
<b abp="1559"><span abp="1560" lang="EN-GB" style="color: red;"><span abp="1561" style="font-family: Calibri;">-3%<o:p abp="1562"></o:p></span></span></b></div>
</div>
</td>
<td abp="1563" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 44.25pt;" valign="top" width="59"><div abp="1564" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="932">
<b abp="1565"><span abp="1566" lang="EN-GB" style="color: #00b050;"><span abp="1567" style="font-family: Calibri;">+7%<o:p abp="1568"></o:p></span></span></b></div>
</div>
</td>
</tr>
<tr abp="1569" style="mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td abp="1570" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1571" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="940">
<span abp="1572" lang="EN-GB"><span abp="1573" style="font-family: Calibri;">Real
GDP/capita**</span></span></div>
</div>
</td>
<td abp="1574" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.55pt;" valign="top" width="57"><div abp="1575" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="945">
<b abp="1576"><span abp="1577" lang="EN-GB" style="color: #00b050;"><span abp="1578" style="font-family: Calibri;">+3%<o:p abp="1579"></o:p></span></span></b></div>
</div>
</td>
<td abp="1580" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.5pt;" valign="top" width="57"><div abp="1581" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="952">
<b abp="1582"><span abp="1583" lang="EN-GB" style="color: red;"><span abp="1584" style="font-family: Calibri;">-2%<o:p abp="1585"></o:p></span></span></b></div>
</div>
</td>
<td abp="1586" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.65pt;" valign="top" width="66"><div abp="1587" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="959">
<b abp="1588"><span abp="1589" lang="EN-GB" style="color: red;"><span abp="1590" style="font-family: Calibri;">-5%<o:p abp="1591"></o:p></span></span></b></div>
</div>
</td>
<td abp="1592" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66"><div abp="1593" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="966">
<b abp="1594"><span abp="1595" lang="EN-GB" style="color: #00b050;"><span abp="1596" style="font-family: Calibri;">+1%<o:p abp="1597"></o:p></span></span></b></div>
</div>
</td>
<td abp="1598" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 42.5pt;" valign="top" width="57"><div abp="1599" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="973">
<b abp="1600"><span abp="1601" lang="EN-GB" style="color: #00b050;"><span abp="1602" style="font-family: Calibri;">+1%<o:p abp="1603"></o:p></span></span></b></div>
</div>
</td>
<td abp="1604" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 47.9pt;" valign="top" width="64"><div abp="1605" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="980">
<b abp="1606"><span abp="1607" lang="EN-GB" style="color: red;"><span abp="1608" style="font-family: Calibri;">-1%<o:p abp="1609"></o:p></span></span></b></div>
</div>
</td>
<td abp="1610" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 44.25pt;" valign="top" width="59"><div abp="1611" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="987">
<b abp="1612"><span abp="1613" lang="EN-GB" style="color: #00b050;"><span abp="1614" style="font-family: Calibri;">+1%<o:p abp="1615"></o:p></span></span></b></div>
</div>
</td>
</tr>
</tbody></table>
<div abp="1616">
<div abp="993">
<span abp="1618" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1619" style="font-family: Calibri;">* <b abp="1620">Land'</b>s like-for-like
rental income compared to the previous year. **Lagged one year. </span></span></div>
</div>
<div abp="1616">
<div abp="998">
<span abp="1618" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1619" style="font-family: Calibri;"><o:p abp="1621"></o:p></span></span> </div>
</div>
<div abp="1622">
</div>
<div abp="1623" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1004">
<span abp="1624" lang="EN-GB"><span abp="1625" style="font-family: Calibri;">The fall in rents appears to be over, as <b abp="1626">Land</b> has reported
for the 12 months to March 2014. <strong abp="1627">How can the individual investor best capitalise
on this turnaround?</strong></span></span></div>
</div>
<div abp="1628">
</div>
<div abp="1629" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1011">
<span abp="1630" style="font-family: Calibri;"><b abp="1631"><span abp="1632" lang="EN-GB">1. <span abp="1633" style="color: #4c1130;">Exchange traded funds (ETF).</span></span></b><span abp="1634" lang="EN-GB"> The only
ETF in the UK Commercial Property sector is the <b abp="1635">iShares UK Property UCITs</b>.
This ETF tracks companies in the property sector, not underlying property
values. Consequently, it adds another layer of costs to the sector (0.4%) and
does nothing to reduce gearing. It also yields only 2.3%, compared to the FTSE
Real Estate Investment Trusts Index of 3.3%.<span abp="1636" style="mso-spacerun: yes;">
</span></span></span></div>
</div>
<div abp="1637">
</div>
<div abp="1638" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1021">
<span abp="1639" style="font-family: Calibri;"><b abp="1640"><span abp="1641" lang="EN-GB">2. <span abp="1642" style="color: #4c1130;">Open Ended Property Funds.</span> </span></b><span abp="1643" lang="EN-GB">The
financial crisis laid bare the flaw in this model. Investors rushed to redeem
their holdings, and the illiquid nature of property meant that many funds were
forced to halt repayments while they sold their assets at knockdown prices. Investors
had to wait six months for their cash and then it was much less than they had
anticipated.</span></span></div>
</div>
<div abp="1644">
</div>
<div abp="1645" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1029">
<span abp="1646" style="font-family: Calibri;"><b abp="1647"><span abp="1648" lang="EN-GB">3. <span abp="1649" style="color: #4c1130;">Property companies and investment trusts</span></span></b><span abp="1650" lang="EN-GB">. Directly investing in quoted companies is the best route for the
individual investor. However, when choosing a company, it would be wise to
consider:</span></span></div>
</div>
<div abp="1651">
</div>
<div abp="1652" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1037">
<!--[if !supportLists]--><span abp="1653" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1654" style="mso-list: Ignore;">Ø<span abp="1655" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1656" dir="LTR"></span><span abp="1657" style="font-family: Calibri;"><b abp="1658"><span abp="1659" lang="EN-GB">The level of debt.</span></b><span abp="1660" lang="EN-GB"> Managers are tempted to gear up a company in the often-justified
belief that property values will increase at a greater rate than the cost of
finance. However, as the last property crash illustrated, this can be very
risky. This is particularly the case when the funding is short-term - property
can be hard to sell in a crisis.</span></span></div>
</div>
<div abp="1661">
</div>
<div abp="1662" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1048">
<!--[if !supportLists]--><span abp="1663" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1664" style="mso-list: Ignore;">Ø<span abp="1665" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1666" dir="LTR"></span><span abp="1667" style="font-family: Calibri;"><b abp="1668"><span abp="1669" lang="EN-GB">The share's premium or discount to net asset
value (NAV)</span></b><span abp="1670" lang="EN-GB">. Evidently it is best to buy at a
discount to NAV. However, the best run property companies command a premium to
NAV while those that trade on a discount often do so for good reason. As share
price premiums are fairly volatile, the current premium - or discount - should
be compared to its historic average.</span></span></div>
</div>
<div abp="1671">
</div>
<div abp="1672" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1059">
<!--[if !supportLists]--><span abp="1673" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1674" style="mso-list: Ignore;">Ø<span abp="1675" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1676" dir="LTR"></span><span abp="1677" style="font-family: Calibri;"><b abp="1678"><span abp="1679" lang="EN-GB">The dividend is paid out of net rental
income</span></b><span abp="1680" lang="EN-GB">. Property companies and investment trusts
often pay a dividend that is well in excess of the net profit from renting
properties. Paying part of the dividend from capital is not sustainable.</span></span></div>
</div>
<div abp="1681">
</div>
<div abp="1682" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1070">
<!--[if !supportLists]--><span abp="1683" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1684" style="mso-list: Ignore;">Ø<span abp="1685" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1686" dir="LTR"></span><span abp="1687" style="font-family: Calibri;"><b abp="1688"><span abp="1689" lang="EN-GB">Market capitalisation. </span></b><span abp="1690" lang="EN-GB">Given that properties are high value investments, companies require
substantial funds to offer some degree of diversification. Anything less than
100 million pounds is small by this yardstick.</span></span></div>
</div>
<div abp="1691">
</div>
<div abp="1692" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1081">
<!--[if !supportLists]--><span abp="1693" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1694" style="mso-list: Ignore;">Ø<span abp="1695" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1696" dir="LTR"></span><span abp="1697" style="font-family: Calibri;"><b abp="1698"><span abp="1699" lang="EN-GB">Retail, office or industrial?</span></b><span abp="1700" lang="EN-GB"> <b abp="1701">And location?</b> Depending on a wide range of factors, property
valuations vary between different sectors and different locations at different
times. While the property professional expends much energy on the subject, the
individual investor should accept a degree of ignorance and invest in a company
that spreads its investments over all three sectors.</span></span></div>
</div>
<div abp="1702">
</div>
<div abp="1703" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1093">
<b abp="1704"><span abp="1705" lang="EN-GB"><span abp="1706" style="font-family: Calibri;"><span abp="1707" style="color: #4c1130;">The prudent investor will note:<o:p abp="1708"></o:p></span></span></span></b></div>
</div>
<div abp="1709">
</div>
<div abp="1710" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1101">
<span abp="1711" lang="EN-GB"><span abp="1712" style="font-family: Calibri;">1. <b abp="1713">Commercial property has historically been a lot less
profitable</b> than residential property. Between 1980 and 2013 residential
property, according to IPD.com, returned four times as much as commercial
property.</span></span></div>
</div>
<div abp="1714">
</div>
<div abp="1715" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1107">
<span abp="1716" lang="EN-GB"><span abp="1717" style="font-family: Calibri;">2. <b abp="1718">Data on commercial property</b> returns assume that gross
yields are all reinvested. This exaggerates the possible returns, as it ignores
the cost of managing and maintaining commercial properties.</span></span></div>
</div>
<div abp="1719">
</div>
<div abp="1720" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1113">
<span abp="1721" lang="EN-GB"><span abp="1722" style="font-family: Calibri;">3. <b abp="1723">The pressure on retail businesses from the internet</b>
adversely affects rental yields. Internet retailers require very little space,
and as the margins of traditional retailers are threatened, they spend less on
their properties. However, according to IPD, retail property has performed
better than offices but worse than industrial over the last 33 years.<span abp="1724" style="mso-spacerun: yes;"> </span></span></span></div>
</div>
<div abp="1725">
</div>
<div abp="1726" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="1120">
<span abp="1727" lang="EN-GB"><span abp="1728" style="font-family: Calibri;">---------------------------------------------------------------------------------------------------------------------</span></span></div>
</div>
<div abp="1729">
</div>
<h3 abp="1730" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1731" style="color: #660000;"><span abp="1732" lang="EN-GB"><o:p abp="1733"> </o:p></span><span abp="1734" lang="EN-GB">UK
Commercial Property Trust PLC</span></span></h3>
<h3 abp="1730" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1731" style="color: #660000;"><span abp="1734" lang="EN-GB"><o:p abp="1735"></o:p></span></span> </h3>
<div abp="1736">
</div>
<div abp="1737" class="separator" style="clear: both; text-align: center;">
<a abp="1738" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGXMVP74tcdtysvQ2DAMokQ538jbaXj8Rk5v7srSdRk_yHKmmW2ATBiZOUvRzNzzx2yBJVcBRv9XcicYCiMdLQLLXkFKVteqrecOryabWDsoQPODL96hdgUZFd9m3waaT2Fm3LxoCg9Tw/s1600/UKCM+JUnction+47+leeds.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1739" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGXMVP74tcdtysvQ2DAMokQ538jbaXj8Rk5v7srSdRk_yHKmmW2ATBiZOUvRzNzzx2yBJVcBRv9XcicYCiMdLQLLXkFKVteqrecOryabWDsoQPODL96hdgUZFd9m3waaT2Fm3LxoCg9Tw/s1600/UKCM+JUnction+47+leeds.png" height="205" width="320" /></a></div>
<div abp="1740" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1138">
<span abp="1748" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1749" style="font-family: Calibri;">Junction
47 Leeds, from UKCM.com<o:p abp="1750"></o:p></span></span></div>
</div>
<div abp="1751">
</div>
<div abp="1752" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1144">
<span abp="1753" lang="EN-GB"><o:p abp="1754"><span abp="1755" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1756">
</div>
<div abp="1757" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1150">
<span abp="1758" style="font-family: Calibri;"><b abp="1759"><span abp="1760" lang="EN-GB">UK Commercial Property Trust PLC (UKCM) floated on the stock market
in September 2006</span></b><span abp="1761" lang="EN-GB">, a year before the collapse in
commercial property prices. <b abp="1762">UKCM</b> invests in 41 properties, with the
largest, the Junction 47 Leeds retail park, representing 5.9% of its value. </span></span></div>
</div>
<div abp="1763">
</div>
<div abp="1764" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1158">
<span abp="1765" style="font-family: Calibri;"><b abp="1766"><span abp="1767" lang="EN-GB">Sector weightings are as follows </span></b><span abp="1768" lang="EN-GB">(from
the 2013 annual report):</span></span></div>
</div>
<div abp="1769">
</div>
<div abp="1164" style="text-align: justify;">
</div>
<div abp="1165" style="text-align: justify;">
</div>
<div abp="1166" style="text-align: justify;">
</div>
<div abp="1167" style="text-align: justify;">
</div>
<div abp="1168" style="text-align: justify;">
</div>
<div abp="1169" style="text-align: justify;">
</div>
<div abp="1170" style="text-align: justify;">
</div>
<div abp="1171" style="text-align: justify;">
</div>
<div abp="1172" style="text-align: justify;">
</div>
<div abp="1173" style="text-align: justify;">
</div>
<div abp="1174" style="text-align: justify;">
</div>
<div abp="1175" style="text-align: justify;">
</div>
<div abp="1176" style="text-align: justify;">
</div>
<div abp="1177" style="text-align: justify;">
</div>
<div abp="1178" style="text-align: justify;">
</div>
<div abp="1179" style="text-align: justify;">
</div>
<div abp="1180" style="text-align: justify;">
</div>
<div abp="1181" style="text-align: justify;">
</div>
<div abp="1182" style="text-align: justify;">
</div>
<div abp="1183" style="text-align: justify;">
</div>
<div abp="1184" style="text-align: justify;">
</div>
<div abp="1185" style="text-align: justify;">
</div>
<table abp="1770" border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; mso-yfti-tbllook: 1184;">
<thead abp="1771">
<tr abp="1772" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1773" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;" valign="bottom"><div abp="1774" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1191">
<span abp="1775" lang="EN-GB"><span abp="1776" style="font-family: Calibri;">Sector</span></span></div>
</div>
<div abp="1194" style="text-align: justify;">
</div>
</td><td abp="1777" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;" valign="bottom"><div abp="1196" style="text-align: justify;">
</div>
<div abp="1778" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1198">
<span abp="1779" lang="EN-GB"><span abp="1780" style="font-family: Calibri;">% of
portfolio</span></span></div>
</div>
<div abp="1201" style="text-align: justify;">
</div>
</td></tr>
</thead><tbody abp="1781">
<tr abp="1782" style="mso-yfti-irow: 1;"><td abp="1783" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1205" style="text-align: justify;">
</div>
<div abp="1784" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1207">
<span abp="1785" lang="EN-GB"><span abp="1786" style="font-family: Calibri;">Property - Retail</span></span></div>
</div>
<div abp="1210" style="text-align: justify;">
</div>
</td><td abp="1787" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1212" style="text-align: justify;">
</div>
<div abp="1788" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1214">
<span abp="1789" lang="EN-GB"><span abp="1790" style="font-family: Calibri;">47.19%</span></span></div>
</div>
<div abp="1217" style="text-align: justify;">
</div>
</td></tr>
<tr abp="1791" style="mso-yfti-irow: 2;"><td abp="1792" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1220" style="text-align: justify;">
</div>
<div abp="1793" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1222">
<span abp="1794" lang="EN-GB"><span abp="1795" style="font-family: Calibri;">Property - Office</span></span></div>
</div>
<div abp="1225" style="text-align: justify;">
</div>
</td><td abp="1796" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1227" style="text-align: justify;">
</div>
<div abp="1797" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1229">
<span abp="1798" lang="EN-GB"><span abp="1799" style="font-family: Calibri;">22.49%</span></span></div>
</div>
<div abp="1232" style="text-align: justify;">
</div>
</td></tr>
<tr abp="1800" style="mso-yfti-irow: 3;"><td abp="1801" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1235" style="text-align: justify;">
</div>
<div abp="1802" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1237">
<span abp="1803" lang="EN-GB"><span abp="1804" style="font-family: Calibri;">Property - Industrials</span></span></div>
</div>
<div abp="1240" style="text-align: justify;">
</div>
</td><td abp="1805" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1242" style="text-align: justify;">
</div>
<div abp="1806" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1244">
<span abp="1807" lang="EN-GB"><span abp="1808" style="font-family: Calibri;">22.35%</span></span></div>
</div>
<div abp="1247" style="text-align: justify;">
</div>
</td></tr>
<tr abp="1809" style="mso-yfti-irow: 4;"><td abp="1810" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1250" style="text-align: justify;">
</div>
<div abp="1811" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1252">
<span abp="1812" lang="EN-GB"><span abp="1813" style="font-family: Calibri;">Property - Shopping Centre</span></span></div>
</div>
<div abp="1255" style="text-align: justify;">
</div>
</td><td abp="1814" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1257" style="text-align: justify;">
</div>
<div abp="1815" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1259">
<span abp="1816" lang="EN-GB"><span abp="1817" style="font-family: Calibri;">4.95%</span></span></div>
</div>
<div abp="1262" style="text-align: justify;">
</div>
</td></tr>
<tr abp="1818" style="mso-yfti-irow: 5; mso-yfti-lastrow: yes;"><td abp="1819" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1265" style="text-align: justify;">
</div>
<div abp="1820" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1267">
<span abp="1821" lang="EN-GB"><span abp="1822" style="font-family: Calibri;">Net Current Assets</span></span></div>
</div>
<div abp="1270" style="text-align: justify;">
</div>
</td><td abp="1823" style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(0, 0, 0) rgb(102, 102, 102); border-style: none none dotted; border-width: 0px 0px 1pt; mso-border-bottom-alt: dotted #666666 .75pt; padding: 4.5pt;"><div abp="1272" style="text-align: justify;">
</div>
<div abp="1824" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1274">
<span abp="1825" lang="EN-GB"><span abp="1826" style="font-family: Calibri;">3.03%</span></span></div>
</div>
</td>
</tr>
</tbody></table>
<div abp="1827">
</div>
<div abp="1828" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1279">
<span abp="1829" lang="EN-GB"><o:p abp="1830"><span abp="1831" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1832">
</div>
<div abp="1833" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1285">
<span abp="1834" style="font-family: Calibri;"><b abp="1835"><span abp="1836" lang="EN-GB">All UKCM's properties are located in the UK</span></b><span abp="1837" lang="EN-GB"> and they are spread around the country. The property portfolio has
been managed since launch by Ignis Investment Services, a subsidiary of <b abp="1838">Standard
Life PLC. </b>The company<b abp="1839"> </b>has a market capitalisation of 1 billion
pounds, trades on a 4.5% premium to net asset value and yields 4.5%.</span></span></div>
</div>
<div abp="1840">
</div>
<div abp="1841" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1294">
<span abp="1842" style="font-family: Calibri;"><b abp="1843"><span abp="1844" lang="EN-GB">The directors' decision to limit the trust's debt</span></b><span abp="1845" lang="EN-GB"> helped it to weather the financial crisis much better than the
majority of its peers. <b abp="1846">UKCM</b>'s share price (in red) has declined far less
than <b abp="1847">iShares UK Property ETF</b> (in blue) that I have used as a benchmark.</span></span></div>
</div>
<div abp="1848">
</div>
<div abp="2065" class="separator" style="clear: both; text-align: center;">
<a abp="2066" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUXobphiR7XQaB-_aH9K2sGfk568qO1EhGkbDRtWB6a7aiIzDT_p7TSbwo7_kB0fv4Cs5DcHfGVZGVa013aESnUfAGBLOV2fvuhhxDEWHrtbvfPEMqPBl736uKCU0ElPtRih2umk3GNks/s1600/UKCM+vs+iShare+ETF.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2067" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUXobphiR7XQaB-_aH9K2sGfk568qO1EhGkbDRtWB6a7aiIzDT_p7TSbwo7_kB0fv4Cs5DcHfGVZGVa013aESnUfAGBLOV2fvuhhxDEWHrtbvfPEMqPBl736uKCU0ElPtRih2umk3GNks/s1600/UKCM+vs+iShare+ETF.png" height="135" width="400" /></a></div>
<div abp="1851" class="separator" style="clear: both; text-align: center;">
<span abp="1853" style="font-family: Calibri;"><span abp="1857" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1858" style="mso-spacerun: yes;"> </span>Chart courtesy Yahoo, click to enlarge.</span></span></div>
<div abp="1851" class="separator" style="clear: both; text-align: center;">
<span abp="1853" style="font-family: Calibri;"><span abp="1857" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1859"></o:p></span></span> </div>
<div abp="1860">
</div>
<div abp="1861" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1315">
<b abp="1862"><span abp="1863" lang="EN-GB"><span abp="1864" style="font-family: Calibri;">UKCM offers the investor a fairly secure route into the commercial
property market. Consider:<o:p abp="1865"></o:p></span></span></b></div>
</div>
<div abp="1866">
</div>
<div abp="1867" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1322">
<!--[if !supportLists]--><span abp="1868" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1869" style="mso-list: Ignore;"><span abp="1870" style="font-family: Calibri;">1.</span><span abp="1871" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1872" dir="LTR"></span><span abp="1873" style="font-family: Calibri;"><b abp="1874"><span abp="1875" lang="EN-GB">Net
debt is just 17% of net assets</span></b><span abp="1876" lang="EN-GB">, which <b abp="1877">UKCM</b>
claims is the lowest gearing in the sector. Loans are long term and their
weighted cost is 3.85%. As <b abp="1878">Standard Life Investments</b> owns 55% of the
trust, it should ensure that this conservative approach to financing continues.</span></span></div>
</div>
<div abp="1879">
</div>
<div abp="1880" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1336">
<!--[if !supportLists]--><span abp="1881" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1882" style="mso-list: Ignore;"><span abp="1883" style="font-family: Calibri;">2.</span><span abp="1884" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1885" dir="LTR"></span><span abp="1886" style="font-family: Calibri;"><b abp="1887"><span abp="1888" lang="EN-GB">The
property portfolio</span></b><span abp="1889" lang="EN-GB"> is well diversified, both by
sector and by region, though the concentration on wealthier parts of the UK
means that Southern England has a much larger weighting than elsewhere.</span></span></div>
</div>
<div abp="1890">
</div>
<div abp="1891" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1348">
<!--[if !supportLists]--><span abp="1892" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1893" style="mso-list: Ignore;"><span abp="1894" style="font-family: Calibri;">3.</span><span abp="1895" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1896" dir="LTR"></span><span abp="1897" style="font-family: Calibri;"><b abp="1898"><span abp="1899" lang="EN-GB">Vacancy
rates</span></b><span abp="1900" lang="EN-GB"> of 3.7% are low by the standards of the
sector and 99% of rents are received within 28 days of becoming due. </span></span></div>
</div>
<div abp="1901">
</div>
<div abp="1902" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1360">
<!--[if !supportLists]--><span abp="1903" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1904" style="mso-list: Ignore;"><span abp="1905" style="font-family: Calibri;">4.</span><span abp="1906" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1907" dir="LTR"></span><span abp="1908" lang="EN-GB"><span abp="1909" style="font-family: Calibri;">The
directors decided in 2014 that <b abp="1910">the dividend</b> should be covered by net
rental earnings. As a result, they reduced the dividend for 2014, but the shares
still yield a healthy 4.5%. </span></span></div>
</div>
<div abp="1911">
</div>
<div abp="1912" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1371">
<!--[if !supportLists]--><span abp="1913" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1914" style="mso-list: Ignore;"><span abp="1915" style="font-family: Calibri;">5.</span><span abp="1916" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1917" dir="LTR"></span><span abp="1918" style="font-family: Calibri;"><b abp="1919"><span abp="1920" lang="EN-GB">Revenue
earnings per share</span></b><span abp="1921" lang="EN-GB"> have been stable over the past
five years. Total costs, which include a 0.65% management fee, amount to 1.8%
of the trust's total assets.</span></span></div>
</div>
<div abp="1922">
</div>
<div abp="1923" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1383">
<!--[if !supportLists]--><span abp="1924" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1925" style="mso-list: Ignore;"><span abp="1926" style="font-family: Calibri;">6.</span><span abp="1927" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1928" dir="LTR"></span><span abp="1929" style="font-family: Calibri;"><b abp="1930"><span abp="1931" lang="EN-GB">The NAV</span></b><span abp="1932" lang="EN-GB"> per share reported as of June, was 7% higher than December and <b abp="1933">UKCM</b>
expects it to be higher again at the year-end.</span></span></div>
</div>
<div abp="1934">
</div>
<div abp="1935" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1396">
<span abp="1936" style="font-family: Calibri;"><b abp="1937"><span abp="1938" lang="EN-GB">The main valuation tool</span></b><span abp="1939" lang="EN-GB"> for property
companies is to compare the share price to the underlying net asset value.
Currently, <b abp="1940">UKCM</b> trades on a 4.5% premium to net asset value, which is about
average for the past five years: </span></span></div>
</div>
<div abp="1941">
</div>
<div abp="1942" class="separator" style="clear: both; text-align: center;">
<a abp="1943" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSW3jWpXbretGjK5JMvSpZasE1b5ndwnGh3YTy8-9UNio-DB5hBr3vyvGKcf4lrM3pO6hYvfgsDkdjfzIdWveEjajgMEjCTj9NzYulvHZKJtS1FMT4ONfmQ-IWahyphenhyphennmORIWKhyPKqemWU/s1600/UKCM+PLC+premium-discount+chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1944" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSW3jWpXbretGjK5JMvSpZasE1b5ndwnGh3YTy8-9UNio-DB5hBr3vyvGKcf4lrM3pO6hYvfgsDkdjfzIdWveEjajgMEjCTj9NzYulvHZKJtS1FMT4ONfmQ-IWahyphenhyphennmORIWKhyPKqemWU/s1600/UKCM+PLC+premium-discount+chart.png" height="137" width="400" /></a></div>
<div abp="1945" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1407">
<span abp="1946" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="1947" alt="UKCM PLC premium-discount chart.png" id="Picture_x0020_3" o:spid="_x0000_i1025" style="height: 147.75pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="1948" style="font-family: Calibri;">
<v:imagedata abp="1949" o:title="UKCM PLC premium-discount chart" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></span></v:shape></span><span abp="1950" style="font-family: Calibri;"><span abp="1951" lang="EN-GB"><span abp="1952" style="mso-tab-count: 1;"> </span></span><span abp="1953" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">Chart courtesy <i abp="1954">Investors Chronicle</i>, click to enlarge.<o:p abp="1955"></o:p></span></span></div>
</div>
<div abp="1956">
</div>
<div abp="1957" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt; text-align: justify;">
<div abp="1420">
<span abp="1958" lang="EN-GB"><span abp="1959" style="font-family: Calibri;">It is likely that the NAV per share of 78p in June will soon reach
the current share price of 81.5p.</span></span></div>
</div>
<div abp="1960">
</div>
<div abp="1961" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt; text-align: justify;">
<div abp="1425">
<span abp="1962" lang="EN-GB"><span abp="1963" style="font-family: Calibri;">Both the directors and the managing agents are unreservedly
optimistic about the future of <b abp="1964">UKCM's</b> business. Two directors have
backed this judgment by buying shares at 76p in February and 81p in August.</span></span></div>
</div>
<div abp="1965">
</div>
<div abp="1966" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt; text-align: justify;">
<div abp="1431">
<b abp="1967"><span abp="1968" lang="EN-GB"><span abp="1969" style="font-family: Calibri;"><span abp="1970" style="color: #4c1130;">Nevertheless, prospective investors will note:<o:p abp="1971"></o:p></span></span></span></b></div>
</div>
<div abp="1972">
</div>
<div abp="1973" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1439">
<!--[if !supportLists]--><span abp="1974" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1975" style="mso-list: Ignore;">·<span abp="1976" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1977" dir="LTR"></span><span abp="1978" lang="EN-GB"><span abp="1979" style="font-family: Calibri;">Rising
rents and commercial property prices depend on a continuing recovery of the UK
economy. </span></span></div>
</div>
<div abp="1980">
</div>
<div abp="1981" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1448">
<!--[if !supportLists]--><span abp="1982" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1983" style="mso-list: Ignore;">·<span abp="1984" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1985" dir="LTR"></span><span abp="1986" lang="EN-GB"><span abp="1987" style="font-family: Calibri;">Investors
are attracted to commercial property for its steady income. An increase in
yields in other asset classes could depress the value of property company
shares. And UKCM's premium could disappear or turn to a discount, as it did in
late 2011. </span></span></div>
</div>
<div abp="1988">
</div>
<div abp="1989" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1457">
<!--[if !supportLists]--><span abp="1990" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1991" style="mso-list: Ignore;">·<span abp="1992" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1993" dir="LTR"></span><span abp="1994" lang="EN-GB"><span abp="1995" style="font-family: Calibri;">Property
companies provide limited diversification from other equities. A study by Rick
Ferri in the US suggest that the correlation between Real Estate Investment
Trusts and the stock market has been inconsistent over the last 32 years. At
times it approaches one and at times it approaches zero. </span></span></div>
</div>
<div abp="1996">
</div>
<div abp="1997" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt; text-align: justify;">
<div abp="1466">
<span abp="1998" lang="EN-GB"><o:p abp="1999"><span abp="2000" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="2001">
</div>
<div abp="2002" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 12pt 0cm 0pt; text-align: justify;">
<div abp="1472">
<i abp="2003"><span abp="2004" lang="EN-GB"><span abp="2005" style="font-family: Calibri;"><span abp="2006" style="color: #20124d;">Disclosure: I hold a long position in UKCM.<o:p abp="2007"></o:p></span></span></span></i></div>
</div>
<div abp="2008">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com3tag:blogger.com,1999:blog-6123577473607160262.post-71109762266424994142014-08-14T16:39:00.000+01:002014-08-14T16:39:30.486+01:00<div abp="294">
</div>
<h3 abp="295" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="296" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="297" style="color: #073763;">The Water Utilities - Waiting for Ofwat<o:p abp="298"></o:p></span></span></h3>
<div abp="299">
</div>
<h4 abp="300" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="301" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="302" style="color: #660000;">And Dee Valley Group PLC<o:p abp="303"></o:p></span></span></h4>
<div abp="304">
</div>
<div abp="971" class="separator" style="clear: both; text-align: center;">
<a abp="972" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyVSnqZNz5qI_s0xta67hoVlyLSsW4E0l-8x7lSwZ4KOFhElzkVJXEGesWZoPh1iC-iIhyphenhyphenJDxpD67zh0joGa3A0Wb49pt_gyoR_dFwWQn-drnxJZkdlEtynL6iaVTo4vEqymA9gC3Zl_k/s1600/Cathryn+Ross+of+Ofwat+www.edie.net.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="973" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyVSnqZNz5qI_s0xta67hoVlyLSsW4E0l-8x7lSwZ4KOFhElzkVJXEGesWZoPh1iC-iIhyphenhyphenJDxpD67zh0joGa3A0Wb49pt_gyoR_dFwWQn-drnxJZkdlEtynL6iaVTo4vEqymA9gC3Zl_k/s1600/Cathryn+Ross+of+Ofwat+www.edie.net.jpg" /></a></div>
<div abp="305" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="333" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="334" style="font-family: Calibri;">Cathryn Ross,
Chief Executive of Ofwat, courtesy www.edie.net<o:p abp="335"></o:p></span></span></div>
<div abp="336">
</div>
<div abp="337" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="338" style="font-family: Calibri;"><b abp="339"><span abp="340" lang="EN-US" style="mso-ansi-language: EN-US;">One of the first stops for the
investor seeking income is the water utilities</span></b><span abp="341" lang="EN-US" style="mso-ansi-language: EN-US;">. Currently, they yield between 3.8% and 4.5%.
But every five years British water companies must negotiate their terms of
business with the regulator, <b abp="342">Ofwat</b>, and this can be a source of grief
for investors. Both <b abp="343">United Utilities</b> and <b abp="344">Severn Trent</b> reduced
their dividend payouts after the last 5-year review. <span abp="345" style="mso-spacerun: yes;"> </span><o:p abp="346"></o:p></span></span></div>
<div abp="347">
</div>
<div abp="348" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="349" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="350" style="font-family: Calibri;">However, the <b abp="351">Gas & Water
sector</b> (in blue) has performed better than the <b abp="352">FTSE All Share</b> (in
black) over the last five years and these indices do not take into account the
higher income that shareholders have received from this sector:<o:p abp="353"></o:p></span></span></div>
<div abp="354">
</div>
<div abp="995" class="separator" style="clear: both; text-align: center;">
<a abp="996" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRogixGY6YZa5gfbKe6IMFRMcMgJ1itP_dTDxm3z4fRHCGADJex9hKuZT97Mw-vlPTL2IU-xsTmwZFw5f661VrOWpzpC2WH-8aKnj0z0p1iZZUyQjg1R-4pl8CODulq8IiOKhbOvino0w/s1600/FTSE+Gaswater+Vs+All+Share+-+ineractive+investor.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="997" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRogixGY6YZa5gfbKe6IMFRMcMgJ1itP_dTDxm3z4fRHCGADJex9hKuZT97Mw-vlPTL2IU-xsTmwZFw5f661VrOWpzpC2WH-8aKnj0z0p1iZZUyQjg1R-4pl8CODulq8IiOKhbOvino0w/s1600/FTSE+Gaswater+Vs+All+Share+-+ineractive+investor.png" height="252" width="400" /></a></div>
<div abp="355" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="356" style="font-family: Calibri;"><span abp="357" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="358" alt="FTSE Gaswater Vs All Share - ineractive investor.png" id="Picture_x0020_2" o:spid="_x0000_i1027" style="height: 269.25pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75">
<v:imagedata abp="359" o:title="FTSE Gaswater Vs All Share - ineractive investor" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.png">
</v:imagedata></v:shape></span></span><span abp="364" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="365" style="font-family: Calibri;">Graph
courtesy www.Interactive Investor, click to enlarge <o:p abp="366"></o:p></span></span></div>
<div abp="367">
</div>
<div abp="368" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="369" style="font-family: Calibri;"><b abp="370"><span abp="371" lang="EN-US" style="mso-ansi-language: EN-US;">The corollary is that the water
utilities are highly valued.</span></b><span abp="372" lang="EN-US" style="mso-ansi-language: EN-US;"> Income stocks have seen their prices bid high by investors looking for
alternatives to the low yields available elsewhere in the financial markets. <o:p abp="373"></o:p></span></span></div>
<div abp="374">
</div>
<div abp="375" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="376" lang="EN-GB"><span abp="377" style="font-family: Calibri;">Further, one way that
the water companies have found to improve their performance is to borrow at low
interest rates. They have relied heavily on loan financing to meet their
capital requirements and to pay generous dividends. The result is that they are
all heavily indebted. </span></span></div>
<div abp="379" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="380" lang="EN-GB"><o:p abp="381"><span abp="382" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="383">
</div>
<table abp="384" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 12.5pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="385">
<tr abp="386" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="387" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.15pt;" valign="top" width="123">
<div abp="388" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="389" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="390" style="font-family: Calibri;">Company<o:p abp="391"></o:p></span></span></div>
</td>
<td abp="392" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76">
<div abp="393" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="394" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="395" style="font-family: Calibri;">PE Ratio<o:p abp="396"></o:p></span></span></div>
</td>
<td abp="397" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div abp="398" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="399" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="400" style="font-family: Calibri;">Yield<o:p abp="401"></o:p></span></span></div>
</td>
<td abp="402" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95">
<div abp="403" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="404" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="405" style="font-family: Calibri;">Debt/Equity <o:p abp="406"></o:p></span></span></div>
</td>
<td abp="407" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="408" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="409" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="410" style="font-family: Calibri;">Market Cap pounds Mn<o:p abp="411"></o:p></span></span></div>
</td>
</tr>
<tr abp="412" style="mso-yfti-irow: 1;">
<td abp="413" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.15pt;" valign="top" width="123">
<div abp="414" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="415" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="416" style="font-family: Calibri;">United Utilities<o:p abp="417"></o:p></span></span></div>
</td>
<td abp="418" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76">
<div abp="419" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="420" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="421" style="font-family: Calibri;">19<o:p abp="422"></o:p></span></span></div>
</td>
<td abp="423" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div abp="424" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="425" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="426" style="font-family: Calibri;">4.3%<o:p abp="427"></o:p></span></span></div>
</td>
<td abp="428" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95">
<div abp="429" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="430" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="431" style="font-family: Calibri;">268%<o:p abp="432"></o:p></span></span></div>
</td>
<td abp="433" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="434" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="435" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="436" style="font-family: Calibri;">5770<o:p abp="437"></o:p></span></span></div>
</td>
</tr>
<tr abp="438" style="mso-yfti-irow: 2;">
<td abp="439" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.15pt;" valign="top" width="123">
<div abp="440" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="441" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="442" style="font-family: Calibri;">Severn Trent<o:p abp="443"></o:p></span></span></div>
</td>
<td abp="444" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76">
<div abp="445" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="446" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="447" style="font-family: Calibri;">21<o:p abp="448"></o:p></span></span></div>
</td>
<td abp="449" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div abp="450" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="451" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="452" style="font-family: Calibri;">4.2%<o:p abp="453"></o:p></span></span></div>
</td>
<td abp="454" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95">
<div abp="455" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="456" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="457" style="font-family: Calibri;">417%<o:p abp="458"></o:p></span></span></div>
</td>
<td abp="459" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="460" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="461" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="462" style="font-family: Calibri;">4540<o:p abp="463"></o:p></span></span></div>
</td>
</tr>
<tr abp="464" style="mso-yfti-irow: 3;">
<td abp="465" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.15pt;" valign="top" width="123">
<div abp="466" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="467" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="468" style="font-family: Calibri;">Pennon<o:p abp="469"></o:p></span></span></div>
</td>
<td abp="470" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76">
<div abp="471" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="472" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="473" style="font-family: Calibri;">16<o:p abp="474"></o:p></span></span></div>
</td>
<td abp="475" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div abp="476" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="477" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="478" style="font-family: Calibri;">3.8%<o:p abp="479"></o:p></span></span></div>
</td>
<td abp="480" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95">
<div abp="481" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="482" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="483" style="font-family: Calibri;">196%<o:p abp="484"></o:p></span></span></div>
</td>
<td abp="485" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="486" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="487" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="488" style="font-family: Calibri;">3090<o:p abp="489"></o:p></span></span></div>
</td>
</tr>
<tr abp="490" style="mso-yfti-irow: 4; mso-yfti-lastrow: yes;">
<td abp="491" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.15pt;" valign="top" width="123">
<div abp="492" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="493" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="494" style="font-family: Calibri;">Dee Valley Water<o:p abp="495"></o:p></span></span></div>
</td>
<td abp="496" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76">
<div abp="497" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="498" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="499" style="font-family: Calibri;">15<o:p abp="500"></o:p></span></span></div>
</td>
<td abp="501" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 49.6pt;" valign="top" width="66">
<div abp="502" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="503" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="504" style="font-family: Calibri;">4.5%<o:p abp="505"></o:p></span></span></div>
</td>
<td abp="506" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95">
<div abp="507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="508" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="509" style="font-family: Calibri;">185%<o:p abp="510"></o:p></span></span></div>
</td>
<td abp="511" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="512" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="513" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="514" style="font-family: Calibri;">63<o:p abp="515"></o:p></span></span></div>
</td>
</tr>
</tbody></table>
<div abp="516">
</div>
<div abp="517" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="518" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="519"><span abp="520" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="521">
</div>
<div abp="522" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="523" style="font-family: Calibri;"><b abp="524"><span abp="525" lang="EN-US" style="mso-ansi-language: EN-US;">The water companies are now facing
another 5-year review from Ofwat for the period 2015 to 2020.</span></b><span abp="526" lang="EN-US" style="mso-ansi-language: EN-US;"> What is in store for them? The
regulator has stated that it intends to reduce the regulatory weighted average
cost of capital (WAAC) for the water companies from 5.1% to 3.85%. The WAAC is
one of the inputs for the financial model <b abp="527">Ofwat</b> uses to set prices. If
all other factors remain unchanged, this would imply a reduction of 24.6% in
the companies' post-tax earnings. However, in part this reduction reflects the
declining cost of debt. And <b abp="528">Ofwat</b> offers incentives to the water
companies to meet certain performance targets.<o:p abp="529"></o:p></span></span></div>
<div abp="530">
</div>
<div abp="531" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="532" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="533" style="font-family: Calibri;">But it comes as something of a shock
to shareholders that <b abp="534">Ofwat</b> proposes that the cost of equity (post tax)
should fall by 20%, from 7.1% to 5.65%, when using the model to calculate
prices for the next five years. <span abp="535" style="mso-spacerun: yes;"> </span><o:p abp="536"></o:p></span></span></div>
<div abp="537">
</div>
<div abp="538" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="539" style="font-family: Calibri;"><b abp="540"><span abp="541" lang="EN-US" style="mso-ansi-language: EN-US;">In broad terms, water company
revenues can only grow by</span></b><span abp="542" lang="EN-US" style="mso-ansi-language: EN-US;">:<o:p abp="543"></o:p></span></span></div>
<div abp="544">
</div>
<div abp="545" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="546" lang="EN-US" style="font-family: Wingdings; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="547" style="mso-list: Ignore;">Ø<span abp="548" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="549" dir="LTR"></span><span abp="550" style="font-family: Calibri;"><b abp="551"><span abp="552" lang="EN-US" style="mso-ansi-language: EN-US;">Ofwat-approved
price increases</span></b><span abp="553" lang="EN-US" style="mso-ansi-language: EN-US;">.
But <b abp="554">Ofwat</b> is looking for price increases below the rate of inflation.<o:p abp="555"></o:p></span></span></div>
<div abp="556">
</div>
<div abp="557" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="558" lang="EN-US" style="font-family: Wingdings; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="559" style="mso-list: Ignore;">Ø<span abp="560" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="561" dir="LTR"></span><span abp="562" style="font-family: Calibri;"><b abp="563"><span abp="564" lang="EN-US" style="mso-ansi-language: EN-US;">Large projects</span></b><span abp="565" lang="EN-US" style="mso-ansi-language: EN-US;"> that require new capital to, for
instance, replace water mains or water treatment plants. <b abp="566">Ofwat</b> permits
an increase in price to provide a return on new capital. <o:p abp="567"></o:p></span></span></div>
<div abp="568">
</div>
<div abp="569" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="570" lang="EN-US" style="font-family: Wingdings; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="571" style="mso-list: Ignore;">Ø<span abp="572" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="573" dir="LTR"></span><span abp="574" style="font-family: Calibri;"><b abp="575"><span abp="576" lang="EN-US" style="mso-ansi-language: EN-US;">Growth in
household and business use of water</span></b><span abp="577" lang="EN-US" style="mso-ansi-language: EN-US;">. The number of households is growing by 1% per
annum. <o:p abp="578"></o:p></span></span></div>
<div abp="579">
</div>
<div abp="580" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="581" style="font-family: Calibri;"><b abp="582"><span abp="583" lang="EN-US" style="mso-ansi-language: EN-US;">In practice</span></b><span abp="584" lang="EN-US" style="mso-ansi-language: EN-US;">, average revenues of the four quoted
water companies have risen by exactly the rate of retail price inflation in the
past four years - 3.2% per annum. Meanwhile, earnings per share, once adjusted
for extraordinary items, have stagnated.<o:p abp="585"></o:p></span></span></div>
<div abp="586">
</div>
<div abp="587" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="588" style="font-family: Calibri;"><b abp="589"><span abp="590" lang="EN-US" style="mso-ansi-language: EN-US;">Before investing in the water sector
investors should consider</span></b><span abp="591" lang="EN-US" style="mso-ansi-language: EN-US;">:<o:p abp="592"></o:p></span></span></div>
<div abp="593">
</div>
<div abp="594" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="595" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="596" style="font-family: Calibri;">1. <b abp="597">Ofwat's </b>final decisions
will most likely be published in December 2014. The uncertainty running up to
then will most likely be reflected in share prices.<o:p abp="598"></o:p></span></span></div>
<div abp="599">
</div>
<div abp="600" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="601" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="602" style="font-family: Calibri;">2. <b abp="603">The water sector is rated very
highly by the market in historical terms.</b> In part, this is the search for
income and in part, the result of last year's bid for <b abp="604">Severn Trent</b>.
Three institutional investors offered a 15% premium to the market price for that
company.<o:p abp="605"></o:p></span></span></div>
<div abp="606">
</div>
<div abp="607" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="608" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="609" style="font-family: Calibri;">3. <b abp="610">The outlook for the next five
years</b> is determined largely by the regulator. And the indications are that <b abp="611">Ofwat</b>
wants to keep prices low. There is political pressure on all regulators to
restrict price increases at the cost of shareholders. This could mean that some
of the companies would have to cut their dividends, just as <b abp="612">United Utilities</b>
and <b abp="613">Severn Trent</b> did in FY 2011. Some might have to raise new capital
from shareholders.<o:p abp="614"></o:p></span></span></div>
<div abp="615">
</div>
<div abp="616" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="617" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="618" style="font-family: Calibri;"><span abp="619" style="mso-spacerun: yes;"> </span>---------------------------------------------------------------------------------------------------------------------<o:p abp="620"></o:p></span></span></div>
<div abp="621">
</div>
<h3 abp="622" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="624" lang="EN-US" style="mso-ansi-language: EN-US;"><span style="color: #990000;">Dee Valley Group PLC (DVW)<o:p abp="626"></o:p></span></span></h3>
<div abp="627">
</div>
<div abp="1039" class="separator" style="clear: both; text-align: center;">
<a abp="1040" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRnpg3Zj7DLLk8y3tOcK9aGdUMeciQejuwTZnBo-pMRapysQh2bs-Xk_RjGuJTjSzm4kDlaAr_Q6nFgj4hhcdqLAj_0RXzsOW89x-rzl0NzOy3uilnCDTlPRhJuxSjqwuMa3vhugWlR9U/s1600/800px-+River+Dee+Curzon_Park_Chester.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1041" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRnpg3Zj7DLLk8y3tOcK9aGdUMeciQejuwTZnBo-pMRapysQh2bs-Xk_RjGuJTjSzm4kDlaAr_Q6nFgj4hhcdqLAj_0RXzsOW89x-rzl0NzOy3uilnCDTlPRhJuxSjqwuMa3vhugWlR9U/s1600/800px-+River+Dee+Curzon_Park_Chester.jpg" height="240" width="320" /></a></div>
<div abp="628" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="637" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="638" style="font-family: Calibri;">The River Dee at Chester, courtesy
Wikipedia<o:p abp="639"></o:p></span></span></div>
<div abp="640">
</div>
<div abp="641" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="642" style="font-family: Calibri;"><b abp="643"><span abp="644" lang="EN-GB">The Dee Valley Group (Dee)</span></b><span abp="645" lang="EN-GB"> is by far the
smallest of the four water companies quoted on the London Stock Exchange. This
has, for the individual investor, some advantages. The company is so small - it
has a market capitalization of 63 million pounds - that only one analyst
bothers to cover it. As <b abp="646">AXA S. A</b>., the general insurance company, holds
35% of <b abp="647">Dee's</b> shares, the free float is further reduced. As a result,
perhaps, <b abp="648">Dee</b> is on the lowest PE ratio and yields the highest dividend
of any of the water companies and it has the lowest debt to equity ratio.</span></span></div>
<div abp="649">
</div>
<div abp="650" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="651" style="font-family: Calibri;"><b abp="652"><span abp="653" lang="EN-GB">Dee </span></b><span abp="654" lang="EN-GB">provides a pure water service to
113,000 homes and 8,000 businesses in southern Cheshire and northern Wales. It
does not offer a sewage service or run any other business than providing water
to its market. Its small size enables the company to keep in close contact with
the local authorities, agencies and its customers.</span></span></div>
<div abp="655">
</div>
<div abp="656" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="657"><span abp="658" lang="EN-GB"><span abp="659" style="font-family: Calibri;"><span abp="1057" style="color: #741b47;">Financial Results<o:p abp="1058"></o:p></span></span></span></b></div>
<div abp="661">
</div>
<div abp="662" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="663" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="664" style="mso-list: Ignore;">Ø<span abp="665" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="666" dir="LTR"></span><span abp="667" style="font-family: Calibri;"><b abp="668"><span abp="669" lang="EN-GB">Earnings per share</span></b><span abp="670" lang="EN-GB"> have increased by 3% pa over the 2007-14 period and dividends by
4%. This is slightly ahead of retail price inflation and indicates the
bond-like nature of the regulated water business.</span></span></div>
<div abp="671">
</div>
<div abp="672" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="673" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="674" style="mso-list: Ignore;">Ø<span abp="675" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="676" dir="LTR"></span><span abp="677" style="font-family: Calibri;"><b abp="678"><span abp="679" lang="EN-GB">Return on equity</span></b><span abp="680" lang="EN-GB">
is a healthy 15% reflecting in part the highly leveraged nature of the
company's balance sheet.</span></span></div>
<div abp="681">
</div>
<div abp="682" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="683" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="684" style="mso-list: Ignore;">Ø<span abp="685" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="686" dir="LTR"></span><span abp="687" style="font-family: Calibri;"><b abp="688"><span abp="689" lang="EN-GB">Debt to equity ratio</span></b><span abp="690" lang="EN-GB"> has remained fairly stable and it is currently 185%. Based on its
regulatory asset value of 74 million pounds, debt financing is 68% compared to
equity financing of 32%.</span></span></div>
<div abp="691">
</div>
<div abp="692" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="693" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="694" style="mso-list: Ignore;">Ø<span abp="695" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="696" dir="LTR"></span><span abp="697" style="font-family: Calibri;"><b abp="698"><span abp="699" lang="EN-GB">Net operating cash flow</span></b><span abp="700" lang="EN-GB">, including capital expenditure, was 12.4 million pounds over the
period 2010 to 2014, just falling short of dividend payments of 13.5 million
pounds. The company has not issued or bought back any of its shares in these
five years.</span></span></div>
<div abp="701">
</div>
<div abp="702" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="703" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="704" style="mso-list: Ignore;">Ø<span abp="705" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="706" dir="LTR"></span><span abp="707" style="font-family: Calibri;"><b abp="708"><span abp="709" lang="EN-GB">The main risk</span></b><span abp="710" lang="EN-GB"> to
the business is probably the company's defined benefit pension scheme (DBPS).
Although the scheme is currently in surplus, it could require substantial
funding at some time. Because of the open-ended obligation of such schemes,
nearly all companies with DBPS have closed them in favour of defined
contribution schemes. </span></span></div>
<div abp="711">
</div>
<div abp="712" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<span abp="713" lang="EN-GB"><o:p abp="714"><span abp="715" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="716">
</div>
<div abp="717" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span abp="718" style="font-family: Calibri;"><b abp="719"><span abp="720" lang="EN-GB">Dee's share price (in blue) has outperformed the FTSE All Share
Index</span></b><span abp="721" lang="EN-GB"> over the last five years, without counting
its superior yield.</span></span></div>
<div abp="722">
</div>
<div abp="723" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span abp="724" lang="EN-GB"><o:p abp="725"><span abp="726" style="font-family: Calibri;"> </span></o:p></span><div abp="1077" class="separator" style="clear: both; text-align: center;">
<span abp="726" style="font-family: Calibri;"><a abp="1078" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8vM_gwjlQZ2jva-twR61FP0AFPRgIwzOe1yi38701-pFtypBqcHReUb5Jl_lFoAVUp8IgGMzh-QhhePruj85veiiFO_ZV5Nkti-x1_rTfztrjikzz5-HujjW9O3Zr_aoaUe0wkEb3XU0/s1600/Dee+Valley+water+Vs+FTSE+ALL+Share+Yahoo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1079" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8vM_gwjlQZ2jva-twR61FP0AFPRgIwzOe1yi38701-pFtypBqcHReUb5Jl_lFoAVUp8IgGMzh-QhhePruj85veiiFO_ZV5Nkti-x1_rTfztrjikzz5-HujjW9O3Zr_aoaUe0wkEb3XU0/s1600/Dee+Valley+water+Vs+FTSE+ALL+Share+Yahoo.png" height="173" width="400" /></a></span></div>
<br />
<div abp="727">
</div>
<div abp="728" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: center;">
<span abp="729" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="730" alt="Dee Valley water Vs FTSE ALL Share Yahoo.png" id="Picture_x0020_3" o:spid="_x0000_i1025" style="height: 185.25pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="731" style="font-family: Calibri;">
<v:imagedata abp="732" o:title="Dee Valley water Vs FTSE ALL Share Yahoo" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></span></v:shape></span><span abp="735" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="736" style="font-family: Calibri;">Graph courtesy Yahoo, click to
enlarge.</span></span></div>
<div abp="737">
</div>
<div abp="738" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="739"><span abp="740" lang="EN-GB"><span abp="741" style="font-family: Calibri;"><span style="color: #741b47;">Outlook<o:p abp="742"></o:p></span></span></span></b></div>
<div abp="743">
</div>
<div abp="744" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="745" style="font-family: Calibri;"><b abp="746"><span abp="747" lang="EN-GB">Ofwat's review</span></b><span abp="748" lang="EN-GB"> is influenced by the Customer
Challenge Panels (CCP) that monitor the water utilities. <b abp="749">Dee's</b> CCP has
supported the company's plans that it has lodged with the economic regulator <b abp="750">Ofwat</b>.
The company proposes an increased capital spend for the next five-year period
coupled with a small increase in prices above the rate of price inflation. <b abp="751">Dee's</b>
customers are currently paying one of the lowest tariffs in the country. It has
also argued that it should receive a small company premium for its cost of
capital, on the grounds that smaller entities do not have the scale or
credibility of larger entities. On the debt side, this is covered by <b abp="752">Ofwat's</b>
intention to include the cost of 'embedded debt' - debt the company has already
contracted. </span></span></div>
<div abp="753">
</div>
<div abp="754" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none;">
<span abp="755" style="font-family: Calibri;"><span abp="756" lang="EN-GB">However,
<b abp="757">Ofwat's</b> decision on pricing will not be known until December 2014. The
Company states, "</span><span abp="758" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: MuseoSans-300;">Future dividends will be considered in the context of
the results for the period and the outcome of the current price review
process."<o:p abp="759"></o:p></span></span></div>
<div abp="760">
</div>
<div abp="761" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none;">
<span abp="762" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: MuseoSans-300;"><o:p abp="763"><span abp="764" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="766" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none;">
<span abp="767" style="font-family: Calibri;"><b abp="768"><span abp="769" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: MuseoSans-300;">Assuming
that Dee's business continues on its past trajectory, then my model values Dee's
shares at around 1170p.*</span></b><span abp="770" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: MuseoSans-300;"> This is 16% below the current share
price of 1385p. At 1385p the company's shares trade on a PE ratio of 15 and
yield 4.5%.<o:p abp="771"></o:p></span></span></div>
<div abp="772">
</div>
<div abp="773" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none;">
<span abp="774" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="775" style="font-family: Calibri;">*Assumptions: Eps growth of 2%
p.a.; dividend payout of 66% of earnings; 15% return on equity; equity per
share growth of 5% p.a.; average PE ratio of 13; discounted at 8.8% p.a. for
the five years to 2019.</span></span></div>
<div abp="778" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="779" lang="EN-GB"><o:p abp="780"><span abp="781" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="782">
</div>
<div abp="783" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="784"><span abp="785" lang="EN-GB"><span abp="786" style="font-family: Calibri;"><span style="color: #741b47;">The cautious investor will:<o:p abp="787"></o:p></span></span></span></b></div>
<div abp="788">
</div>
<div abp="789" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="790" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="791" style="mso-list: Ignore;"><span abp="792" style="font-family: Calibri;">1.</span><span abp="793" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="794" dir="LTR"></span><span abp="795" lang="EN-GB"><span abp="796" style="font-family: Calibri;">Wait until
<b abp="797">Ofwat's</b> review is complete, which should be at the end of this year. The
company is sure to make a statement on the impact on its business of the
regulator's decisions. </span></span></div>
<div abp="798">
</div>
<div abp="799" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="800" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="801" style="mso-list: Ignore;"><span abp="802" style="font-family: Calibri;">2.</span><span abp="803" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="804" dir="LTR"></span><span abp="805" lang="EN-GB"><span abp="806" style="font-family: Calibri;">Note that <b abp="807">Dee's</b>
share price reached a 12-month high of 1610p in April and a low of 1308p
earlier this month.</span></span></div>
<div abp="808">
</div>
<div abp="809" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="810" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="811" style="mso-list: Ignore;"><span abp="812" style="font-family: Calibri;">3.</span><span abp="813" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="814" dir="LTR"></span><span abp="815" lang="EN-GB"><span abp="816" style="font-family: Calibri;">Consider
that <b abp="817">Dee's</b> shares are close in nature to an index-linked bond with the
risk of unfavourable quinquennial reviews by the regulator <b abp="818">Ofwat</b>.</span></span></div>
<div abp="819">
</div>
<div abp="820" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="821" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="822" style="mso-list: Ignore;"><span abp="823" style="font-family: Calibri;">4.</span><span abp="824" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="825" dir="LTR"></span><span abp="826" lang="EN-GB"><span abp="827" style="font-family: Calibri;">Keep an
eye on the company's contribution to its DBPS.</span></span></div>
<div abp="828">
</div>
<div abp="829" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="830"><i abp="831"><span abp="832" lang="EN-GB"><span abp="833" style="font-family: Calibri;">Disclosure: I hold a long position in Dee Valley Group.<o:p abp="834"></o:p></span></span></i></b></div>
<div abp="835">
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-13965771488801400282014-07-12T18:05:00.000+01:002014-07-15T11:00:24.254+01:00<div abp="159">
</div>
<h3 abp="160" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="162" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="688" style="color: #20124d;">Technical Analysis of the Stock Market<o:p abp="689"></o:p></span></span></h3>
<div abp="165">
</div>
<h4 abp="166" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="168" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="608" style="color: #660000;">And The Sage Group PLC<o:p abp="170"></o:p></span></span></h4>
<div abp="171">
</div>
<div abp="798" class="separator" style="clear: both; text-align: center;">
<a abp="799" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUMWN_LjCblDvKpjJtU3XNX2tPxNELrOlNThvfvxy2X6-wislZJU7tQqEhGi8EPbLcfrkzG07hXHbxI6CUEsbnr8JoO-N88RSfL9oOMC9p_ZJZ1_oo3QKR1pAmcEf6TQaj1wwOM2p2fSM/s1600/220px-Astrologer_Casting_a_Horoscope_1617+Robert+Fludd.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="800" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUMWN_LjCblDvKpjJtU3XNX2tPxNELrOlNThvfvxy2X6-wislZJU7tQqEhGi8EPbLcfrkzG07hXHbxI6CUEsbnr8JoO-N88RSfL9oOMC9p_ZJZ1_oo3QKR1pAmcEf6TQaj1wwOM2p2fSM/s1600/220px-Astrologer_Casting_a_Horoscope_1617+Robert+Fludd.jpg" /></a></div>
<div abp="172" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="615">
<b abp="173"><span abp="174" lang="EN-US" style="mso-ansi-language: EN-US;"></span></b><span abp="179" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shapetype
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</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span abp="181" lang="EN-US" style="mso-ansi-language: EN-US;"></span><br /></div>
</div>
<div abp="184" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="621">
<span abp="185" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="186" style="font-family: Calibri;">Astrologer
casting a horoscope, Robert Fludd (1617), courtesy Wikipedia<o:p abp="187"></o:p></span></span></div>
</div>
<div abp="188">
</div>
<div abp="189" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="627">
<span abp="190" style="font-family: Calibri;"><b abp="191"><span abp="192" lang="EN-US" style="mso-ansi-language: EN-US;">Astrology fascinated some of the
most brilliant minds of the past</span></b><span abp="193" lang="EN-US" style="mso-ansi-language: EN-US;">. They included Galileo and Kepler. Today some lesser lights devote much
effort and time to technical analysis of the Stock Market. In both cases,
people are fascinated by the challenge of discovering meanings hidden in
numerical sequences as observed in the sky or charts of the stock market. And they
are lured by the promise of wealth and public recognition.<o:p abp="194"></o:p></span></span></div>
</div>
<div abp="195">
</div>
<div abp="196" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="635">
<span abp="197" style="font-family: Calibri;"><b abp="198"><span abp="199" lang="EN-US" style="mso-ansi-language: EN-US;">It must have come as something of a
shock to readers</span></b><span abp="200" lang="EN-US" style="mso-ansi-language: EN-US;"> of
the Traders Column in the <i abp="201">Investors Chronicle</i>, that the trader, in his
farewell article this week, should write, "</span><span abp="202" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">I have come to believe that much of
what passes for Technical Analysis is nothing more than faith-based nonsense.
It would be laughable, but for the real money that it helps to lose. I include
in this several of the dark arts in which I myself have dabbled in the past,
including Fibonacci, the Elliott Wave Principle, and much of Gann Theory."
<o:p abp="203"></o:p></span></span></div>
</div>
<div abp="204">
</div>
<div abp="205" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="645">
<span abp="206" lang="EN-GB"><span abp="207" style="font-family: Calibri;">It is rather as if Benedict XVI had announced that he was retiring
from the Papacy because he no longer believed in God.</span></span></div>
</div>
<div abp="208">
</div>
<div abp="209" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="650">
<span abp="210" lang="EN-GB"><span abp="211" style="font-family: Calibri;">As readers of this blog might recall, one method of judging where we
are in the stock market cycle is to review a list of down to earth indicators,
such as those used by Howard Marks of <b abp="212">Oaktree Capital Management</b>. See </span><a abp="213" href="http://thejoyfulinvestor.blogspot.co.uk/2014/01/where-are-we-now-in-stock-market-cycle.html"><span abp="214" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2014/01/where-are-we-now-in-stock-market-cycle.html</span></a></span></div>
</div>
<div abp="215">
</div>
<div abp="216" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="658">
<span abp="217" lang="EN-GB"><span abp="218" style="font-family: Calibri;">But I cannot resist presenting a chart prepared by dshort.com (Doug
Short) that I came across recently (click to enlarge):</span></span></div>
</div>
<div abp="219">
</div>
<div abp="851" class="separator" style="clear: both; text-align: center;">
<a abp="852" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijG5wMtVayoZpOD8xskAVNBs_4iWtpJSmC2Drn9guboplErd9TOgiDe9_bdZ-B2U_0_ueHDcSgAr4ysh3xumI5s0o5gtGmlWQHtO5y5ko50zxthD5lM64BmO55CWrYOTG4nozBtOBn0ug/s1600/NYSE-investor-credit-SPX-since-1980.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="853" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijG5wMtVayoZpOD8xskAVNBs_4iWtpJSmC2Drn9guboplErd9TOgiDe9_bdZ-B2U_0_ueHDcSgAr4ysh3xumI5s0o5gtGmlWQHtO5y5ko50zxthD5lM64BmO55CWrYOTG4nozBtOBn0ug/s1600/NYSE-investor-credit-SPX-since-1980.gif" height="291" width="400" /></a></div>
<div abp="220" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="666">
<span abp="221" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_2"
o:spid="_x0000_i1027" type="#_x0000_t75" alt="NYSE-investor-credit-SPX-since-1980.gif"
style='width:425.25pt;height:309.75pt;visibility:visible;mso-wrap-style:square'>
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</div>
<div abp="223">
</div>
<div abp="224" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="670">
<span abp="225" lang="EN-GB"><span abp="226" style="font-family: Calibri;"><strong>The chart tracks the flow of funds from individual investors</strong> in the
New York Stock Exchange (NYSE). It is hardly a surprise that the S&P 500
rises on the back of inflows and recedes on the back of outflows. What is
interesting is the magnitude of investor buying on margin since 1998 and the
rapidity with which investors liquidated their positions in 2001 and 2008. American
investors have become much more active with the result that markets are more
volatile now than they were between 1945 and 1998. </span></span></div>
</div>
<div abp="227">
</div>
<div abp="228" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="675">
<span abp="229" style="font-family: Calibri;"><span abp="230" lang="EN-GB">Doug Short recognises that, as data for credit balances is available
only six weeks after the event, it lacks any predictive power. But he comments "</span><span abp="231" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">. . . the magnitude of the
latest negative credit level is comparable to the maximum debt reached four
months before the 2007 market peak. I see this as yet another caution light for
investor expectations." </span></span></div>
</div>
<div abp="232">
</div>
<div abp="233" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="681">
<span abp="234" lang="EN-GB"><span abp="235" style="font-family: Calibri;">As the FTSE All Share Index closely follows the S&P 500, this
observation is relevant for UK investors.</span></span></div>
</div>
<div abp="236">
</div>
<div abp="237" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="686">
<span abp="238" lang="EN-GB"><span abp="239" style="font-family: Calibri;">-------------------------------------------------------------------------------------------------------</span></span></div>
</div>
<div abp="240">
</div>
<h3 abp="241" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="243" lang="EN-GB"><span abp="692" style="color: #660000;">The
Sage Group PLC<o:p abp="245"></o:p></span></span></h3>
<div abp="246">
</div>
<div abp="858" class="separator" style="clear: both; text-align: center;">
<a abp="859" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6C_SQp6-pQTXhFNcOuCrPExPkdVYrGs0P0xmuNon7XH19VZ9SztwgsYcpY3sc0MurMXHOIF4TS23_pnax-nKE-6Bsi6qnGL0fpIb7WEJYNWYYIOyi1d-MkLmpOYhGR_D7gC_siGjYwcM/s1600/Clay_accounting_tokens_Susa_Louvre_n2+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="860" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6C_SQp6-pQTXhFNcOuCrPExPkdVYrGs0P0xmuNon7XH19VZ9SztwgsYcpY3sc0MurMXHOIF4TS23_pnax-nKE-6Bsi6qnGL0fpIb7WEJYNWYYIOyi1d-MkLmpOYhGR_D7gC_siGjYwcM/s1600/Clay_accounting_tokens_Susa_Louvre_n2+wiki.jpg" height="320" width="304" /></a></div>
<div abp="247" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<div abp="699">
<span abp="248" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
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</div>
<div abp="250">
</div>
<div abp="251" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="703">
<span abp="252" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="253" style="font-family: Calibri;">Clay accounting tokens from Susa,
Mesopotamia 3500 BC, courtesy Wikipedia<o:p abp="254"></o:p></span></span></div>
</div>
<div abp="255">
</div>
<div abp="256" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="709">
<span abp="257" style="font-family: Calibri;"><b abp="258"><span abp="259" lang="EN-GB">Successful long-term investors</span></b><span abp="260" lang="EN-GB"> like to
invest in companies with steady businesses that require little capital
investment and are leaders in their chosen markets. Warren Buffett is said to
look for specific qualities in a company. They are discussed at <a abp="261" href="http://thejoyfulinvestor.blogspot.co.uk/2013/02/warrenbuffett-andis-berkshire-hathaway.html"><span abp="262" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013/02/warrenbuffett-andis-berkshire-hathaway.html</span></a></span></span></div>
</div>
<div abp="263">
</div>
<div abp="264" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="718">
<span abp="265" style="font-family: Calibri;"><b abp="266"><span abp="267" lang="EN-GB">The Sage Group PLC (Sage)</span></b><span abp="268" lang="EN-GB"> is one such
company that fits the bill. It specialises in providing accounting and related software
packages for <b abp="269">Small and Medium Enterprises (SMEs). Consider:<o:p abp="270"></o:p></b></span></span></div>
</div>
<div abp="271">
</div>
<div abp="272" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="727">
<b abp="273"><span abp="274" lang="EN-GB"><span abp="275" style="font-family: Calibri;"><span abp="877" style="color: #660000;">The market<o:p abp="878"></o:p></span></span></span></b></div>
</div>
<div abp="277">
</div>
<div abp="278" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="735">
<!--[if !supportLists]--><span abp="279" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="280" style="mso-list: Ignore;">Ø<span abp="281" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="282" dir="LTR"></span><span abp="283" style="font-family: Calibri;"><b abp="284"><span abp="285" lang="EN-GB">Sage has built up a customer base of 6
million SMEs</span></b><span abp="286" lang="EN-GB"> and recurring revenue is 71% of the
business. 83% of subscribers renew their subscription annually. Both the
proportion of recurring revenues and renewal rates are on the rise.</span></span></div>
</div>
<div abp="287">
</div>
<div abp="288" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="746">
<!--[if !supportLists]--><span abp="289" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="290" style="mso-list: Ignore;">Ø<span abp="291" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="292" dir="LTR"></span><span abp="293" style="font-family: Calibri;"><b abp="294"><span abp="295" lang="EN-GB">The company is heavily dependent </span></b><span abp="296" lang="EN-GB">on the mature markets in Europe (56% of revenues) and North America
(28%). A move into Brazil and its large presence in South Africa coincide with
weak fundamentals in both economies.</span></span></div>
</div>
<div abp="297">
</div>
<div abp="298" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="757">
<!--[if !supportLists]--><span abp="299" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="300" style="mso-list: Ignore;">Ø<span abp="301" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="302" dir="LTR"></span><span abp="303" style="font-family: Calibri;"><b abp="304"><span abp="305" lang="EN-GB">It claims to be market leader</span></b><span abp="306" lang="EN-GB"> in six of its seven largest markets - the UK, France, Spain, South
Africa, Canada and Brazil. And it claims to be the second largest supplier to
mid-market SMEs in the USA.</span></span></div>
</div>
<div abp="307">
</div>
<div abp="308" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="768">
<!--[if !supportLists]--><span abp="309" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="310" style="mso-list: Ignore;">Ø<span abp="311" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="312" dir="LTR"></span><span abp="313" style="font-family: Calibri;"><b abp="314"><span abp="315" lang="EN-GB">The company has a good record</span></b><span abp="316" lang="EN-GB"> of developing its products and adapting them to new technologies. </span></span></div>
</div>
<div abp="317">
</div>
<div abp="318" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="779">
<!--[if !supportLists]--><span abp="319" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="320" style="mso-list: Ignore;">Ø<span abp="321" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="322" dir="LTR"></span><span abp="323" style="font-family: Calibri;"><b abp="324"><span abp="325" lang="EN-GB">By offering a wide range of products</span></b><span abp="326" lang="EN-GB"> for its three main market segments - companies with 1 to 20, 10 to
200 and 100-500 employees - <b abp="327">Sage</b> offers its clients products that fill
their needs as they grow in size.</span></span></div>
</div>
<div abp="328">
</div>
<div abp="329" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="791">
<span abp="330" style="font-family: Calibri;"><b abp="331"><span abp="332" lang="EN-GB">Sage has a myriad of competitors</span></b><span abp="333" lang="EN-GB">,
ranging from large software companies such as SAP, Oracle and Microsoft, to new
software companies that are offering cloud-hosted products. Its global market
share has declined from 9% in 2008 to 6% in 2013. Its two biggest competitors, <b abp="334">SAP</b>
and <b abp="335">Oracle</b>, have 25% and 13% respectively of the global market for
Enterprise Resource Planning (ERP) software.</span></span></div>
</div>
<div abp="336">
</div>
<div abp="337" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="800">
<span abp="338" style="font-family: Calibri;"><b abp="339"><span abp="340" lang="EN-GB">But recent reviews of its new cloud-hosted products</span></b><span abp="341" lang="EN-GB"> suggest that the company has succeeded in developing good cloud-hosted
products that can be integrated with its desktop software.</span></span></div>
</div>
<div abp="342">
</div>
<div abp="343" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="807">
<span abp="344" style="font-family: Calibri;"><b abp="345"><span abp="346" lang="EN-GB">Further, Sage has embarked on a programme of selling off non-core
assets</span></b><span abp="347" lang="EN-GB"> to concentrate on what it does best. This is
coupled with the objective of increasing 'organic revenue' by 6% a year. In the
latest interim results for 2014, the company approached this objective by
increasing 'organic revenue' by 5%. </span></span></div>
</div>
<div abp="348">
</div>
<div abp="349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="814">
<b abp="350"><span abp="351" lang="EN-GB"><span abp="352" style="font-family: Calibri;">Financials<o:p abp="353"></o:p></span></span></b></div>
</div>
<div abp="354">
</div>
<div abp="355" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.95pt; mso-add-space: auto; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="821">
<!--[if !supportLists]--><span abp="356" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="357" style="mso-list: Ignore;">Ø<span abp="358" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="359" dir="LTR"></span><span abp="360" style="font-family: Calibri;"><b abp="361"><span abp="362" lang="EN-GB">Revenues,
</span></b><span abp="363" lang="EN-GB">on average, have grown by 2% compared to a global
industry average of 12% these past three years. In part, this is due to its
concentration on developed markets, and in part to loss of market share. Earnings
have also stagnated in 2011-13.</span></span></div>
</div>
<div abp="364">
</div>
<div abp="365" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.95pt; mso-add-space: auto; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="832">
<!--[if !supportLists]--><span abp="366" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="367" style="mso-list: Ignore;">Ø<span abp="368" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="369" dir="LTR"></span><span abp="370" style="font-family: Calibri;"><b abp="371"><span abp="372" lang="EN-GB">Cash
generation is strong</span></b><span abp="373" lang="EN-GB">. In the last 5 years, <b abp="374">Sage</b>
has generated net operating cash flow of 1.36 billion pounds that amply covers
the 0.55 billion pounds normal dividend payout. The company uses little capital
and pre-tax margins average over 20%.</span></span></div>
</div>
<div abp="375">
</div>
<div abp="376" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.95pt; mso-add-space: auto; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="844">
<!--[if !supportLists]--><span abp="377" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="378" style="mso-list: Ignore;">Ø<span abp="379" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="380" dir="LTR"></span><span abp="381" style="font-family: Calibri;"><b abp="382"><span abp="383" lang="EN-GB">Return
on equity is now 26%,</span></b><span abp="384" lang="EN-GB"> which has been elevated by
some adroit financial management. <b abp="385">Sage</b> returned 1 billion pounds to
shareholders last year by way of a special dividend and share buyback. It
financed part of this with borrowings equivalent to one year's EBITA. In the
process, the company reduced its average cost of debt from 4.6% to 3.8%.</span></span></div>
</div>
<div abp="386">
</div>
<div abp="387" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 37.95pt; mso-add-space: auto; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="856">
<!--[if !supportLists]--><span abp="388" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="389" style="mso-list: Ignore;">Ø<span abp="390" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="391" dir="LTR"></span><span abp="392" style="font-family: Calibri;"><b abp="393"><span abp="394" lang="EN-GB">The
company has no significant exposure to defined benefit pension schemes</span></b><span abp="395" lang="EN-GB">. However, its balance sheet is top heavy with goodwill. <b abp="396">Sage</b>
is a serial acquirer of businesses and, as its recent 188 million pound loss on
disposal of businesses shows, these are often overvalued.</span></span></div>
</div>
<div abp="397">
</div>
<div abp="398" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="868">
<span abp="399" style="font-family: Calibri;"><b abp="400"><span abp="401" lang="EN-GB">Sage's share price</span></b><span abp="402" lang="EN-GB"> (in blue), until
recently, has closely tracked the NASDAQ index (in green):</span></span></div>
</div>
<div abp="403">
</div>
<div abp="879" class="separator" style="clear: both; text-align: center;">
<a abp="880" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPKHGDfIjGeqY19fSfg_ywmecHI_U68KSz6ziBfZstsOfqlA_HiLs-s6aOVrczlIHnHyQ7yx69yXCZDwKOiDA1ESTjQmhx0nBr0zoBciYWueZi4BPWpdut4uCuTv-SGX8wLt-oO8DLqHA/s1600/Sage+share+price+compared+to+NASDAQ+2014.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="881" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPKHGDfIjGeqY19fSfg_ywmecHI_U68KSz6ziBfZstsOfqlA_HiLs-s6aOVrczlIHnHyQ7yx69yXCZDwKOiDA1ESTjQmhx0nBr0zoBciYWueZi4BPWpdut4uCuTv-SGX8wLt-oO8DLqHA/s1600/Sage+share+price+compared+to+NASDAQ+2014.png" height="172" width="400" /></a></div>
<div abp="404" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="878">
<span abp="405" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_3"
o:spid="_x0000_i1025" type="#_x0000_t75" alt="Sage share price compared to NASDAQ 2014.png"
style='width:425.25pt;height:184.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image007.png"
o:title="Sage share price compared to NASDAQ 2014"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
</div>
<div abp="407" style="text-align: center;">
<div abp="881">
<span abp="882" style="font-size: x-small;">Graph courtesy Yahoo, click to enlarge</span></div>
</div>
<div abp="407">
<div abp="884">
</div>
</div>
<div abp="408" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="886">
<span abp="409" style="font-family: Calibri;"><b abp="410"><span abp="411" lang="EN-GB">The drop off in Sage's share price in 2013 and 2014 reflects</span></b><span abp="412" lang="EN-GB">:</span></span></div>
</div>
<div abp="413">
</div>
<div abp="414" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 38.6pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="893">
<!--[if !supportLists]--><span abp="415" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="416" style="mso-list: Ignore;"><span abp="417" style="font-family: Calibri;">1.</span><span abp="418" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="419" dir="LTR"></span><span abp="420" lang="EN-GB"><span abp="421" style="font-family: Calibri;">The large <b abp="422">special
dividend payment</b>, coinciding with a small inverted triangle in the chart. </span></span></div>
</div>
<div abp="423">
</div>
<div abp="424" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 38.6pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="904">
<!--[if !supportLists]--><span abp="425" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="426" style="mso-list: Ignore;"><span abp="427" style="font-family: Calibri;">2.</span><span abp="428" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="429" dir="LTR"></span><span abp="430" lang="EN-GB"><span abp="431" style="font-family: Calibri;">The market
reaction to the September 2013 launch of a new cloud-hosted competitor in the
UK called <b abp="432">Xero</b>. <b abp="433">Xero</b> is a New Zealand-based software company.
With sales of 35 million pounds and a pre-tax loss of 18 million pounds, <b abp="434">Xero</b>
has a market value of 1.6 billion pounds. </span></span></div>
</div>
<div abp="435">
</div>
<div abp="436" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 38.6pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="917">
<!--[if !supportLists]--><span abp="437" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="438" style="mso-list: Ignore;"><span abp="439" style="font-family: Calibri;">3.</span><span abp="440" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="441" dir="LTR"></span><span abp="442" lang="EN-GB"><span abp="443" style="font-family: Calibri;">The May 2014 announcement that <b abp="444">Sage's CEO</b>
would be leaving the company.</span></span></div>
</div>
<div abp="445">
</div>
<div abp="446" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="928">
<span abp="447" style="font-family: Calibri;"><b abp="448"><span abp="449" lang="EN-GB">At the current share price of 370p, Sage trades on a PE ratio of 16
and yields 3.1%. </span></b><span abp="450" lang="EN-GB">My valuation model values <b abp="451">Sage</b>
at around 330p a share.</span></span></div>
</div>
<div abp="452">
</div>
<div abp="453" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="936">
<span abp="454" style="font-family: Calibri;"><b abp="455"><span abp="456" lang="EN-GB">This valuation assumes</span></b><span abp="457" lang="EN-GB"> that the present
rate of organic revenue growth, which is 5% per annum, translates into a
similar increase in earnings per share and net operating cash flow for the
period 2014 to 2018. </span></span></div>
</div>
<div abp="458">
</div>
<div abp="459" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="943">
<b abp="460"><span abp="461" lang="EN-GB"><span abp="462" style="font-family: Calibri;"><span abp="947" style="color: #660000;">The cautious investor will note:<o:p abp="463"></o:p></span></span></span></b></div>
</div>
<div abp="464">
</div>
<div abp="465" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<div abp="951">
<!--[if !supportLists]--><span abp="466" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="467" style="mso-list: Ignore;">v<span abp="468" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="469" dir="LTR"></span><span abp="470" style="font-family: Calibri;"><b abp="471"><span abp="472" lang="EN-GB">Sage is vulnerable to new competitors</span></b><span abp="473" lang="EN-GB">, particularly in cloud-based products where the start-up costs are
fairly small. The company states in its 2013 Annual Report that larger
companies want desktop software and trained staff whom they can contact. This
might well be true right now, but it does not follow that this will always be
the case.</span></span></div>
</div>
<div abp="474">
</div>
<div abp="475" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<div abp="962">
<!--[if !supportLists]--><span abp="476" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="477" style="mso-list: Ignore;">v<span abp="478" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="479" dir="LTR"></span><span abp="480" style="font-family: Calibri;"><b abp="481"><span abp="482" lang="EN-GB">The loss of Sage's highly regarded CEO</span></b><span abp="483" lang="EN-GB"> after only 4 years in office is a concern. He led the new strategy
to concentrate on core products and generate 6% organic growth a year. Will a
new CEO follow his lead, and if so, will the new CEO implement it successfully?</span></span></div>
</div>
<div abp="484">
</div>
<div abp="485" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<div abp="973">
<!--[if !supportLists]--><span abp="486" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="487" style="mso-list: Ignore;">v<span abp="488" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="489" dir="LTR"></span><span abp="490" style="font-family: Calibri;"><b abp="491"><span abp="492" lang="EN-GB">The shares have traded as low as 312p</span></b><span abp="493" lang="EN-GB"> in the last 12 months and technology stocks in general are now out
of favour. </span></span></div>
</div>
<div abp="494">
</div>
<div abp="495" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="984">
<b abp="496"><i abp="497"><span abp="498" lang="EN-GB"><span abp="499" style="font-family: Calibri;"><span abp="989" style="color: #4c1130;">Disclosure: I have a long position in Sage but will not trade these
shares within the next 5 days.<o:p abp="500"></o:p></span></span></span></i></b></div>
</div>
<div abp="501">
</div>
<div abp="502" class="MsoListParagraph" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; text-align: justify;">
<div abp="993">
<span abp="503" lang="EN-GB"><o:p abp="504"><span abp="505" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="506">
</div>
<div abp="507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="999">
<span abp="508" lang="EN-GB"><o:p abp="509"><span abp="510" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="511">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com2tag:blogger.com,1999:blog-6123577473607160262.post-80848665068443434162014-06-23T19:02:00.002+01:002014-06-23T19:06:30.148+01:00<h3 abp="605">
</h3>
<h3 abp="970" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="971" lang="EN-GB"><span abp="972" style="color: #20124d;">Vodafone
PLC after the sale of Wireless<o:p abp="973"></o:p></span></span></h3>
<div abp="605">
</div>
<div abp="975" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<div abp="976">
<span abp="977" lang="EN-GB"><o:p abp="978"><span abp="979" style="font-family: Calibri;"> </span></o:p></span><br />
<div abp="1994" class="separator" style="clear: both; text-align: center;">
<span abp="977" lang="EN-GB"><span abp="979" style="font-family: Calibri;"><a abp="1995" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjoNnCnaWSiCHHOftr5mzfpDL5wcC-dpxagh0To9HCgQtAPlZEh2zgkLSJtZfDOXpvqVFgjKWEGeB4oH0DPVe6UZjm9W1L8ktqfODiHkTKqkazjiBXUcJAOAk3PxTzBM-nNjSz6XNYFnTc/s1600/220px-Vittorio_Colao+Vodafone+Wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1996" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjoNnCnaWSiCHHOftr5mzfpDL5wcC-dpxagh0To9HCgQtAPlZEh2zgkLSJtZfDOXpvqVFgjKWEGeB4oH0DPVe6UZjm9W1L8ktqfODiHkTKqkazjiBXUcJAOAk3PxTzBM-nNjSz6XNYFnTc/s1600/220px-Vittorio_Colao+Vodafone+Wiki.jpg" /></a></span></span></div>
<br /></div>
</div>
<div abp="983" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="984">
<span abp="985" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shapetype abp="986" coordsize="21600,21600" filled="f" id="_x0000_t75" o:preferrelative="t" o:spt="75" path="m@4@5l@4@11@9@11@9@5xe" stroked="f"><span abp="987" style="font-family: Calibri;">
<v:stroke abp="988" joinstyle="miter">
<v:formulas abp="989">
<v:f abp="990" eqn="if lineDrawn pixelLineWidth 0">
<v:f abp="991" eqn="sum @0 1 0">
<v:f abp="992" eqn="sum 0 0 @1">
<v:f abp="993" eqn="prod @2 1 2">
<v:f abp="994" eqn="prod @3 21600 pixelWidth">
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<v:f abp="998" eqn="prod @7 21600 pixelWidth">
<v:f abp="999" eqn="sum @8 21600 0">
<v:f abp="1000" eqn="prod @7 21600 pixelHeight">
<v:f abp="1001" eqn="sum @10 21600 0">
</v:f>
<v:path abp="1002" gradientshapeok="t" o:connecttype="rect" o:extrusionok="f">
<o:lock abp="1003" aspectratio="t" v:ext="edit">
</o:lock><v:shape abp="1004" alt="220px-Vittorio_Colao Vodafone Wiki.jpg" id="Picture_x0020_0" o:spid="_x0000_i1027" style="height: 184.5pt; mso-wrap-style: square; visibility: visible; width: 130.5pt;" type="#_x0000_t75">
<v:imagedata abp="1005" o:title="220px-Vittorio_Colao Vodafone Wiki" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.jpg">
</v:imagedata></v:shape></v:path></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:formulas></v:stroke></span></v:shapetype></span><span abp="1009" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1010" style="font-family: Calibri;">Vittorio Colao, CEO of Vodafone,
courtesy Wikipedia<o:p abp="1011"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1013" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1014">
<span abp="1015" style="font-family: Calibri;"><b abp="1016"><span abp="1017" lang="EN-GB">In May last year</span></b><span abp="1018" lang="EN-GB"> I argued that the main
value of <b abp="1019">Vodafone</b> lay in its 45% ownership of <b abp="1020">Verizon Wireless</b>.
My model then valued the remainder of Vodafone's business at 67p a share (see<span abp="1021" style="mso-spacerun: yes;"> </span><a abp="1022" href="http://thejoyfulinvestor.blogspot.co.uk/2013/05/marriageand-divorce-corporate-style_15.html"><span abp="1023" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013/05/marriageand-divorce-corporate-style_15.html</span></a>).
As Vodafone consolidated its shares in February 2014, issuing 6 new shares for
every 11 old shares, this would equal 123p a share today. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1025" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1026">
<span abp="1027" style="font-family: Calibri;"><b abp="1028"><span abp="1029" lang="EN-GB">Verizon Wireless</span></b><span abp="1030" lang="EN-GB"> was a great investment
and <b abp="1031">Vodafone</b> has passed on 51 billion pounds from the sale to
shareholders.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1033" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1034">
<span abp="1035" style="font-family: Calibri;"><b abp="1036"><span abp="1037" lang="EN-GB">Vodafone retained 26 billion pounds (after paying US taxes) of the
proceeds of the sale of Wireless. </span></b><span abp="1038" lang="EN-GB">These proceeds
amount to 98p a share. Adding 98p to the 123p a share that I valued the
company's non-Wireless business in May 2013 would give a notional current valuation
of 221p to <b abp="1039">Vodafone</b>. <b abp="1040">Vodafone</b> shares currently trade at 192p. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1042" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1043">
<b abp="1044"><u abp="1045"><span abp="1046" lang="EN-GB" style="color: #c00000;"><span abp="1047" style="font-family: Calibri;">What is the financial state of Vodafone post
Wireless?<o:p abp="1048"></o:p></span></span></u></b></div>
</div>
<div abp="605">
</div>
<div abp="1050" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1051">
<!--[if !supportLists]--><span abp="1052" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1053" style="mso-list: Ignore;"><span abp="1054" style="font-family: Calibri;">1.</span><span abp="1055" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1056" dir="LTR"></span><span abp="1057" style="font-family: Calibri;"><b abp="1058"><span abp="1059" lang="EN-GB">In its
2014 Annual Report, Vodafone</span></b><span abp="1060" lang="EN-GB"> provides us with three
years of trading results excluding <b abp="1061">Wireless</b>. It does not make for pretty
reading. If one excludes the contribution from <b abp="1062">Wireless</b>, <b abp="1063">Vodafone</b>'s
results for 2012-14 would be as follows:<span abp="1064" style="mso-tab-count: 1;"> </span></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1066" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1067">
<span abp="1068" lang="EN-GB"><o:p abp="1069"><span abp="1070" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<table abp="1072" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 62.1pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1073">
<tr abp="1074" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1075" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1076" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1077">
<span abp="1078" lang="EN-GB"><span abp="1079" style="font-family: Calibri;">Pounds billions to 31 March</span></span></div>
</div>
</td>
<td abp="1080" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1081" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1082">
<span abp="1083" lang="EN-GB"><span abp="1084" style="font-family: Calibri;">2014</span></span></div>
</div>
</td>
<td abp="1085" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1086" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1087">
<span abp="1088" lang="EN-GB"><span abp="1089" style="font-family: Calibri;">2013</span></span></div>
</div>
</td>
<td abp="1090" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1091" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1092">
<span abp="1093" lang="EN-GB"><span abp="1094" style="font-family: Calibri;">2012</span></span></div>
</div>
</td>
</tr>
<tr abp="1095" style="mso-yfti-irow: 1;">
<td abp="1096" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1097" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1098">
<span abp="1099" lang="EN-GB"><span abp="1100" style="font-family: Calibri;">Revenue</span></span></div>
</div>
</td>
<td abp="1101" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1102" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1103">
<span abp="1104" lang="EN-GB"><span abp="1105" style="font-family: Calibri;">38.3</span></span></div>
</div>
</td>
<td abp="1106" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1107" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1108">
<span abp="1109" lang="EN-GB"><span abp="1110" style="font-family: Calibri;">38.0</span></span></div>
</div>
</td>
<td abp="1111" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1112" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1113">
<span abp="1114" lang="EN-GB"><span abp="1115" style="font-family: Calibri;">38.8</span></span></div>
</div>
</td>
</tr>
<tr abp="1116" style="mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td abp="1117" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1118" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1119">
<span abp="1120" lang="EN-GB"><span abp="1121" style="font-family: Calibri;">Profit/(Loss) before tax</span></span></div>
</div>
</td>
<td abp="1122" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1123" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1124">
<span abp="1125" lang="EN-GB"><span abp="1126" style="font-family: Calibri;">(5.3)</span></span></div>
</div>
</td>
<td abp="1127" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1128" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1129">
<span abp="1130" lang="EN-GB"><span abp="1131" style="font-family: Calibri;">(3.5)</span></span></div>
</div>
</td>
<td abp="1132" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1133" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1134">
<span abp="1135" lang="EN-GB"><span abp="1136" style="font-family: Calibri;">4.1</span></span></div>
</div>
</td>
</tr>
</tbody></table>
<div abp="605">
</div>
<div abp="1138" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1139">
<span abp="1140" lang="EN-GB"><span abp="1141" style="font-family: Calibri;">Revenues are flat and the company is deeply in loss.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1143" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1144">
<span abp="1145" lang="EN-GB"><o:p abp="1146"><span abp="1147" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1149" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1150">
<!--[if !supportLists]--><span abp="1151" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1152" style="mso-list: Ignore;"><span abp="1153" style="font-family: Calibri;">2.</span><span abp="1154" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1155" dir="LTR"></span><span abp="1156" style="font-family: Calibri;"><b abp="1157"><span abp="1158" lang="EN-GB">Net
operating cash flows</span></b><span abp="1159" lang="EN-GB"> for the three years total 5
billion pounds, which falls far short of the 16.5 billion pounds paid in
dividends. The figures by years are:</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1161" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1162">
<span abp="1163" lang="EN-GB"><o:p abp="1164"><span abp="1165" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<table abp="1167" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 62.1pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1168">
<tr abp="1169" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1170" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1171" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1172">
<span abp="1173" lang="EN-GB"><span abp="1174" style="font-family: Calibri;">Pounds billions to 31 March</span></span></div>
</div>
</td>
<td abp="1175" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1176" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1177">
<span abp="1178" lang="EN-GB"><span abp="1179" style="font-family: Calibri;">2014</span></span></div>
</div>
</td>
<td abp="1180" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1181" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1182">
<span abp="1183" lang="EN-GB"><span abp="1184" style="font-family: Calibri;">2013</span></span></div>
</div>
</td>
<td abp="1185" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1186" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1187">
<span abp="1188" lang="EN-GB"><span abp="1189" style="font-family: Calibri;">2012</span></span></div>
</div>
</td>
</tr>
<tr abp="1190" style="mso-yfti-irow: 1;">
<td abp="1191" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1192" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1193">
<span abp="1194" lang="EN-GB"><span abp="1195" style="font-family: Calibri;">Net operating cash flow*</span></span></div>
</div>
</td>
<td abp="1196" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1197" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1198">
<span abp="1199" lang="EN-GB"><span abp="1200" style="font-family: Calibri;">(0.5)</span></span></div>
</div>
</td>
<td abp="1201" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1202" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1203">
<span abp="1204" lang="EN-GB"><span abp="1205" style="font-family: Calibri;">1.1</span></span></div>
</div>
</td>
<td abp="1206" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1207" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1208">
<span abp="1209" lang="EN-GB"><span abp="1210" style="font-family: Calibri;">4.4</span></span></div>
</div>
</td>
</tr>
<tr abp="1211" style="mso-yfti-irow: 2;">
<td abp="1212" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1213" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1214">
<span abp="1215" lang="EN-GB"><span abp="1216" style="font-family: Calibri;">Normal dividends paid</span></span></div>
</div>
</td>
<td abp="1217" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1218" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1219">
<span abp="1220" lang="EN-GB"><span abp="1221" style="font-family: Calibri;">5.1</span></span></div>
</div>
</td>
<td abp="1222" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1223" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1224">
<span abp="1225" lang="EN-GB"><span abp="1226" style="font-family: Calibri;">4.8</span></span></div>
</div>
</td>
<td abp="1227" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1228" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1229">
<span abp="1230" lang="EN-GB"><span abp="1231" style="font-family: Calibri;">6.6</span></span></div>
</div>
</td>
</tr>
<tr abp="1232" style="mso-yfti-irow: 3; mso-yfti-lastrow: yes;">
<td abp="1233" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 5cm;" valign="top" width="189"><div abp="1234" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1235">
<span abp="1236" lang="EN-GB"><span abp="1237" style="font-family: Calibri;">(Shortfall)/Surplus</span></span></div>
</div>
</td>
<td abp="1238" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1239" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1240">
<span abp="1241" lang="EN-GB"><span abp="1242" style="font-family: Calibri;">(5.6)</span></span></div>
</div>
</td>
<td abp="1243" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 2cm;" valign="top" width="76"><div abp="1244" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1245">
<span abp="1246" lang="EN-GB"><span abp="1247" style="font-family: Calibri;">(3.7)</span></span></div>
</div>
</td>
<td abp="1248" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85"><div abp="1249" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<div abp="1250">
<span abp="1251" lang="EN-GB"><span abp="1252" style="font-family: Calibri;">(2.0)</span></span></div>
</div>
</td>
</tr>
</tbody></table>
<div abp="605">
</div>
<div abp="1254" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1255">
<span abp="1256" style="font-family: Calibri;"><span abp="1257" lang="EN-GB"><span abp="1258" style="mso-tab-count: 1;"> </span></span><span abp="1259" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">*Defined as operating cash
flow less capital expenditure and interest payments<o:p abp="1260"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1262" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1263">
<span abp="1264" lang="EN-GB"><o:p abp="1265"><span abp="1266" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1268" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1269">
<span abp="1270" style="font-family: Calibri;"><b abp="1271"><span abp="1272" lang="EN-GB">The 11.2 billion pound shortfall</span></b><span abp="1273" lang="EN-GB"> was paid out from the dividends received from associates, nearly
all of which came from <b abp="1274">Wireless</b>. <b abp="1275">Vodafone</b> is expected to pay a
dividend of 11p a share in 2015, costing 2.9 billion pounds. But will the
company generate sufficient cash to pay it, or will it have to borrow? It is
troubling that management say they will increase the dividend and yet that a
huge investment programme will put pressure on cash flow. A dividend paid out
of borrowings is not sustainable.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1277" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1278">
<span abp="1279" lang="EN-GB"><o:p abp="1280"><span abp="1281" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1283" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1284">
<!--[if !supportLists]--><span abp="1285" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1286" style="mso-list: Ignore;"><span abp="1287" style="font-family: Calibri;">3.</span><span abp="1288" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1289" dir="LTR"></span><span abp="1290" style="font-family: Calibri;"><b abp="1291"><span abp="1292" lang="EN-GB">The
asset side of the balance sheet has taken a turn for the worse</span></b><span abp="1293" lang="EN-GB">. While the 46 billion pound investment in <b abp="1294">Wireless</b> has
disappeared from this account, the company has suddenly added 16.6 billion
pounds in deferred tax to non-current assets. €18.3 billion (15 bn. pounds) arises
in Luxembourg, where Vodafone has a company that it uses to avoid paying tax in other jurisdictions.</span></span></div>
</div>
<div abp="605">
<span abp="1298" lang="EN-GB"><o:p abp="1299"><span abp="1300" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="605">
</div>
<div abp="1302" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1303">
<span abp="1304" lang="EN-GB"><span abp="1305" style="font-family: Calibri;"><span abp="1306" style="mso-spacerun: yes;"> </span><b abp="1307">Vodafone</b>
expects to generate sufficient profits in Luxembourg to absorb tax losses of €63
billion*. Vodafone will have a great time transferring profits to Luxembourg.
The huge losses apparently derive from past impairment charges to goodwill and
intangible assets.</span></span></div>
</div>
<div abp="1309" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1310">
<span abp="1311" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1312" style="font-family: Calibri;">*The
average tax rate in Luxembourg is assumed to be 29%. Hence the deferred tax
asset of 18.3 billion requires 63 billion euros of prior years' losses to be
compensated with future earnings. Source: 2014 Annual Report.<o:p abp="1313"></o:p></span></span></div>
</div>
<div abp="605">
<span abp="1317" lang="EN-GB"><o:p abp="1318"><span abp="1319" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="605">
</div>
<div abp="1321" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1322">
<span abp="1323" style="font-family: Calibri;"><b abp="1324"><span abp="1325" lang="EN-GB">Goodwill and intangible assets</span></b><span abp="1326" lang="EN-GB"> are valued at 46.7 billion pounds. Given that <b abp="1327">Vodafone </b>regularly
takes impairments for goodwill and intangibles, it is not a wonder that the
market discounts <b abp="1328">Vodafone's</b> net asset value by 27%.<span abp="1329" style="mso-spacerun: yes;"> </span></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1331" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1332">
<span abp="1333" lang="EN-GB"><o:p abp="1334"><span abp="1335" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1337" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1338">
<!--[if !supportLists]--><span abp="1339" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1340" style="mso-list: Ignore;"><span abp="1341" style="font-family: Calibri;">4.</span><span abp="1342" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1343" dir="LTR"></span><span abp="1344" style="font-family: Calibri;"><b abp="1345"><span abp="1346" lang="EN-GB">With
the receipt of cash from its sale of Wireless</span></b><span abp="1347" lang="EN-GB">, <b abp="1348">Vodafone'</b>s
debt to equity ratio is quite improved: net debt to equity falls from 44% in
2013 to 27% in 2014. And Moody's maintains the company's A3 credit rating for
long-term unsecured debt. </span></span></div>
</div>
<div abp="605">
<b abp="1352"><span abp="1353" lang="EN-GB"><o:p abp="1354"><span abp="1355" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="605">
</div>
<div abp="1357" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1358">
<span abp="1359" style="font-family: Calibri;"><b abp="1360"><span abp="1361" lang="EN-GB">However, there are two caveats</span></b><span abp="1362" lang="EN-GB">. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1364" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 72pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1365">
<!--[if !supportLists]--><span abp="1366" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1367" style="mso-list: Ignore;">Ø<span abp="1368" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1369" dir="LTR"></span><span abp="1370" lang="EN-GB"><span abp="1371" style="font-family: Calibri;">The
quality of the assets has declined significantly with the loss of <b abp="1372">Wireless</b>,
which paid <b abp="1373">Vodafone</b> 15 billion pounds in dividends over the last three
years.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1375" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 72pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1376">
<!--[if !supportLists]--><span abp="1377" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1378" style="mso-list: Ignore;">Ø<span abp="1379" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1380" dir="LTR"></span><span abp="1381" lang="EN-GB"><span abp="1382" style="font-family: Calibri;">Averaging the last three years' net operating
cash flow, it would take over 11 years to pay off <b abp="1383">Vodafone's</b> net debt. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1385" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1386">
<span abp="1387" style="font-family: Calibri;"><b abp="1388"><span abp="1389" lang="EN-GB">In May 2013 I wrote about truth in financial reporting</span></b><span abp="1390" lang="EN-GB">. I used <b abp="1391">Vodafone</b> as an example of management presenting its
results in such a favourable light that they badly distort the company's true
performance. This misreporting is tied to executive remuneration. It is a bad
business.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1393" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1394">
<span abp="1395" lang="EN-GB"><span abp="1396" style="font-family: Calibri;">You can read about it at </span><a abp="1397" href="http://thejoyfulinvestor.blogspot.co.uk/2013_05_01_archive.html"><span abp="1398" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2013_05_01_archive.html</span></a></span></div>
</div>
<div abp="605">
</div>
<div abp="1400" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1401">
<span abp="1402" style="font-family: Calibri;"><b abp="1403"><span abp="1404" lang="EN-GB">Essentially, management presents results to shareholders that greatly
overstates</span></b><span abp="1405" lang="EN-GB"> the company's performance, both in terms
of profitability and operating cash flow. In particular, management excludes
the very large capital costs of maintaining Vodafone's business and the interest
cost of financing its operations.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1407" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1408">
<span abp="1409" style="font-family: Calibri;"><b abp="1410"><span abp="1411" lang="EN-GB">Capital costs include</span></b><span abp="1412" lang="EN-GB">:</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1414" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo6; text-align: justify; text-indent: -18pt;">
<div abp="1415">
<!--[if !supportLists]--><span abp="1416" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1417" style="mso-list: Ignore;">v<span abp="1418" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1419" dir="LTR"></span><span abp="1420" lang="EN-GB"><span abp="1421" style="font-family: Calibri;">Buying spectrum band width and licenses</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1423" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo6; text-align: justify; text-indent: -18pt;">
<div abp="1424">
<!--[if !supportLists]--><span abp="1425" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1426" style="mso-list: Ignore;">v<span abp="1427" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1428" dir="LTR"></span><span abp="1429" lang="EN-GB"><span abp="1430" style="font-family: Calibri;">Software development</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1432" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l3 level1 lfo6; text-align: justify; text-indent: -18pt;">
<div abp="1433">
<!--[if !supportLists]--><span abp="1434" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1435" style="mso-list: Ignore;">v<span abp="1436" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1437" dir="LTR"></span><span abp="1438" lang="EN-GB"><span abp="1439" style="font-family: Calibri;">Buying and maintaining property, plant and
equipment</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1441" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1442">
<span abp="1443" lang="EN-GB"><span abp="1444" style="font-family: Calibri;">These three items average 7.6 billion pounds a year over the last
six years, equivalent to 20% of <b abp="1445">Vodafone's</b> revenues.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1447" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1448">
<b abp="1449"><u abp="1450"><span abp="1451" lang="EN-GB" style="color: #c00000;"><span abp="1452" style="font-family: Calibri;">Recent Trading<o:p abp="1453"></o:p></span></span></u></b></div>
</div>
<div abp="605">
</div>
<div abp="1455" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1456">
<span abp="1457" style="font-family: Calibri;"><b abp="1458"><span abp="1459" lang="EN-GB">Vodafone has acknowledged that trading in Europe has been difficult</span></b><span abp="1460" lang="EN-GB">. Adjusted operating profits there fell by half between 2012 and
2014. The decline has been across all major markets - Germany, UK, Italy and
Spain.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1462" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1463">
<span abp="1464" style="font-family: Calibri;"><b abp="1465"><span abp="1466" lang="EN-GB">Vodacom</span></b><span abp="1467" lang="EN-GB">, which includes South Africa and
five other African markets, reported a 10% decline in adjusted operating
profits, in part depressed by the fall in the value of the rand. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1469" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1470">
<span abp="1471" lang="EN-GB"><span abp="1472" style="font-family: Calibri;">India - which moved from
a loss of 8 million pounds in 2012 to a profit of 326 million in 2014 - and
other AMAP* - which improved its profit from 218 million pounds to 393 million
- are both moving in the right direction. But these businesses are still quite
small.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1474" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1475">
<span abp="1476" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1477" style="font-family: Calibri;">*Africa, Middle East and Asia Pacific region.<o:p abp="1478"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1480" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1481">
<span abp="1482" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1483"><span abp="1484" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1486" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1487">
<span abp="1488" style="font-family: Calibri;"><b abp="1489"><span abp="1490" lang="EN-GB">Vodafone encounters the same difficult market conditions everywhere</span></b><span abp="1491" lang="EN-GB">:</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1493" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1494">
<!--[if !supportLists]--><span abp="1495" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1496" style="mso-list: Ignore;">v<span abp="1497" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1498" dir="LTR"></span><span abp="1499" lang="EN-GB"><span abp="1500" style="font-family: Calibri;">In most markets there are four or more
competitors.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1502" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1503">
<!--[if !supportLists]--><span abp="1504" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1505" style="mso-list: Ignore;">v<span abp="1506" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1507" dir="LTR"></span><span abp="1508" lang="EN-GB"><span abp="1509" style="font-family: Calibri;">It is difficult to distinguish one company's
offering from another, except by price.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1511" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1512">
<!--[if !supportLists]--><span abp="1513" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1514" style="mso-list: Ignore;">v<span abp="1515" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1516" dir="LTR"></span><span abp="1517" lang="EN-GB"><span abp="1518" style="font-family: Calibri;">Prices are under constant pressure, from both
competition and the regulators.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1520" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1521">
<!--[if !supportLists]--><span abp="1522" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1523" style="mso-list: Ignore;">v<span abp="1524" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1525" dir="LTR"></span><span abp="1526" lang="EN-GB"><span abp="1527" style="font-family: Calibri;">'Bundling', by expanding into new technologies
and products, increases costs and competition. Fixed line and cable operators
are moving into each other's markets and Vodafone's mobile market. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1529" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1530">
<!--[if !supportLists]--><span abp="1531" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1532" style="mso-list: Ignore;">v<span abp="1533" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1534" dir="LTR"></span><span abp="1535" lang="EN-GB"><span abp="1536" style="font-family: Calibri;">In 2014, the company lost market share in 10 of
its markets (including all the large European markets) and gained market share
in seven (including India, South Africa and Turkey).</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1538" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1539">
<!--[if !supportLists]--><span abp="1540" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1541" style="mso-list: Ignore;">v<span abp="1542" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1543" dir="LTR"></span><span abp="1544" lang="EN-GB"><span abp="1545" style="font-family: Calibri;">Companies must invest large amounts in
spectrum, software and plant just to stay competitive.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1547" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1548">
<span abp="1549" lang="EN-GB"><span abp="1550" style="font-family: Calibri;">Meanwhile, the growth in the global market for telecoms, in real
terms, has come to a halt:</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1552" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="1553">
<span abp="1554" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="1555" alt="VOD Telecon revenue 2009-2013.png" id="Picture_x0020_1" o:spid="_x0000_i1026" style="height: 164.25pt; mso-wrap-style: square; visibility: visible; width: 299.25pt;" type="#_x0000_t75"><span abp="1556" style="font-family: Calibri;">
<v:imagedata abp="1557" o:title="VOD Telecon revenue 2009-2013" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></span></v:shape></span><br />
<div abp="2021" class="separator" style="clear: both; text-align: center;">
<span abp="1554" style="mso-ansi-language: ES; mso-no-proof: yes;"><span abp="1556" style="font-family: Calibri;"><a abp="2022" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRdcqxdBpL2KJZ1zn4-D_juesIv5ZT9xev9qboDNYH95ToWS1lVjyb1PSmVH520gi3Xr5UBeM_0Dp563-l5Ivtqor4Q26tw9kyAtAB6gqdTV55e57B94D0N0Ft7wZQOUKGwt-r7ulaKLI/s1600/VOD+Telecon+revenue+2009-2013.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2023" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRdcqxdBpL2KJZ1zn4-D_juesIv5ZT9xev9qboDNYH95ToWS1lVjyb1PSmVH520gi3Xr5UBeM_0Dp563-l5Ivtqor4Q26tw9kyAtAB6gqdTV55e57B94D0N0Ft7wZQOUKGwt-r7ulaKLI/s1600/VOD+Telecon+revenue+2009-2013.png" height="175" width="320" /></a></span></span></div>
<br /></div>
</div>
<div abp="605">
</div>
<div abp="1559" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="1560">
<span abp="1561" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1562" style="font-family: Calibri;">Mobile (bright red), fixed voice
(light red) and fixed broadband (pink), courtesy Vodafone's 2014 AR.<o:p abp="1563"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1565" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1566">
<b abp="1567"><u abp="1568"><span abp="1569" lang="EN-GB" style="color: #c00000;"><span abp="1570" style="font-family: Calibri;">Recent Acquisitions<o:p abp="1571"></o:p></span></span></u></b></div>
</div>
<div abp="605">
</div>
<div abp="1573" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1574">
<span abp="1575" style="font-family: Calibri;"><b abp="1576"><span abp="1577" lang="EN-GB">Vodafone has often paid a full price for its acquisitions</span></b><span abp="1578" lang="EN-GB">. The trend continues. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1580" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l4 level1 lfo4; text-align: justify; text-indent: -18pt;">
<div abp="1581">
<!--[if !supportLists]--><span abp="1582" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1583" style="mso-list: Ignore;"><img abp="1584" alt="*" height="12" src="file:///C:/Users/richard/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif" width="12" /><span abp="1585" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1586" dir="LTR"></span><span abp="1587" lang="EN-GB"><span abp="1588" style="font-family: Calibri;">In
September 2013, the company bought <b abp="1589">Kabel Deutschland</b>, in a bidding war
with <b abp="1590">Liberty Global</b>, the US based cable company, for €7.7 billion.
Applying a standard 33% tax rate to <b abp="1591">Kabel's</b> pre-tax earnings means that
Vodafone paid a whopping 50 times earnings. <b abp="1592">Kabel</b> is the largest cable
company in Germany. It gives Vodafone a big lift in its German market. And
Vodafone promises big cost savings and revenue synergies.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1594" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1595">
<span abp="1596" lang="EN-GB"><o:p abp="1597"><span abp="1598" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1600" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l4 level1 lfo4; text-align: justify; text-indent: -18pt;">
<div abp="1601">
<!--[if !supportLists]--><span abp="1602" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1603" style="mso-list: Ignore;"><img abp="1604" alt="*" height="12" src="file:///C:/Users/richard/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif" width="12" /><span abp="1605" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1606" dir="LTR"></span><span abp="1607" lang="EN-GB"><span abp="1608" style="font-family: Calibri;">Also in
September 2013, <b abp="1609">Vodafone</b> paid <b abp="1610">Verizon </b>$3.5 billion for its 23%
stake in their Italian venture. Applying an Italian federal tax rate of 27.5%
to adjusted operating profits suggests that <b abp="1611">Vodafone</b> paid 26 times
earnings for the remaining stake in the joint venture.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1613" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<div abp="1614">
<span abp="1615" lang="EN-GB"><o:p abp="1616"><span abp="1617" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="605">
</div>
<div abp="1619" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l4 level1 lfo4; text-align: justify; text-indent: -18pt;">
<div abp="1620">
<!--[if !supportLists]--><span abp="1621" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1622" style="mso-list: Ignore;"><img abp="1623" alt="*" height="12" src="file:///C:/Users/richard/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif" width="12" /><span abp="1624" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1625" dir="LTR"></span><span abp="1626" lang="EN-GB"><span abp="1627" style="font-family: Calibri;">In March
2014, <b abp="1628">Vodafone</b> bought <b abp="1629">ONO</b>, Spain's second largest cable company, from
a private equity group for €7.2 billion. Given that <b abp="1630">ONO</b> made a profit of
just €52 million the previous year, the company paid around 130 times earnings
and close to five times sales. <b abp="1631">Vodafone</b> promises revenue synergies of €1
billion. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1633" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1634">
<b abp="1635"><u abp="1636"><span abp="1637" lang="EN-GB" style="color: #c00000;"><span abp="1638" style="font-family: Calibri;">Project Spring<o:p abp="1639"></o:p></span></span></u></b></div>
</div>
<div abp="605">
</div>
<div abp="1641" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1642">
<span abp="1643" style="font-family: Calibri;"><b abp="1644"><span abp="1645" lang="EN-GB">Vittorio Colao has been Vodafone's CEO since 2008</span></b><span abp="1646" lang="EN-GB">. He has launched a new strategy with the hopeful title of <i abp="1647">Project
Spring</i>. The main elements are:</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1649" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l6 level1 lfo5; text-align: justify; text-indent: -18pt;">
<div abp="1650">
<!--[if !supportLists]--><span abp="1651" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1652" style="mso-list: Ignore;">v<span abp="1653" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1654" dir="LTR"></span><span abp="1655" lang="EN-GB"><span abp="1656" style="font-family: Calibri;">Total investments of around 19 billion pounds
in the next two years.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1658" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l6 level1 lfo5; text-align: justify; text-indent: -18pt;">
<div abp="1659">
<!--[if !supportLists]--><span abp="1660" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1661" style="mso-list: Ignore;">v<span abp="1662" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1663" dir="LTR"></span><span abp="1664" lang="EN-GB"><span abp="1665" style="font-family: Calibri;">Aim to reach 91% of the population in Europe
with 4G.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1667" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l6 level1 lfo5; text-align: justify; text-indent: -18pt;">
<div abp="1668">
<!--[if !supportLists]--><span abp="1669" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1670" style="mso-list: Ignore;">v<span abp="1671" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1672" dir="LTR"></span><span abp="1673" lang="EN-GB"><span abp="1674" style="font-family: Calibri;">Lay fibre-optic cable "deep into
residential areas across Europe" and into selected emerging market urban
areas.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1676" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l6 level1 lfo5; text-align: justify; text-indent: -18pt;">
<div abp="1677">
<!--[if !supportLists]--><span abp="1678" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1679" style="mso-list: Ignore;">v<span abp="1680" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1681" dir="LTR"></span><span abp="1682" lang="EN-GB"><span abp="1683" style="font-family: Calibri;">Developing products for enterprises
(commercial) and extending machine-to-machine wireless transmission to 75
countries.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1685" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l6 level1 lfo5; text-align: justify; text-indent: -18pt;">
<div abp="1686">
<!--[if !supportLists]--><span abp="1687" lang="EN-GB" style="color: #002060; font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1688" style="mso-list: Ignore;">v<span abp="1689" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1690" dir="LTR"></span><span abp="1691" lang="EN-GB"><span abp="1692" style="font-family: Calibri;">Modernising 8,000 stores.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1694" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1695">
<span abp="1696" lang="EN-GB"><span abp="1697" style="font-family: Calibri;">There is no mention of the expected return on investment or the
possible implications for earnings per share.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1699" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1700">
<b abp="1701"><u abp="1702"><span abp="1703" lang="EN-GB" style="color: #c00000;"><span abp="1704" style="font-family: Calibri;">Outlook<o:p abp="1705"></o:p></span></span></u></b></div>
</div>
<div abp="605">
</div>
<div abp="1707" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1708">
<span abp="1709" style="font-family: Calibri;"><b abp="1710"><span abp="1711" lang="EN-GB">The CEO's outlook, from the 2014 Annual Report, is for short-term
pain followed by medium-term gain</span></b><span abp="1712" lang="EN-GB">:</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1714" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1715">
<span abp="1716" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1717" style="font-family: Calibri;">"In the short term,
we continue to face competitive, macroeconomic and regulatory pressures,
particularly in Europe, and still need to secure our recovery in some key
markets. . . We anticipate that our investments will begin to translate into
clearly improved network performance and customer satisfaction in the coming
year.<o:p abp="1718"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1720" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1721">
<span abp="1722" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1723" style="font-family: Calibri;">"In the medium term,
this will become more evident in key operational metrics such as churn and
average revenue per user (‘ARPU’); and subsequently into revenue, profitability
and cash flow. I am confident about the future of the business given the growth
prospects in data, emerging markets, enterprise and unified communications. . .
While cash flow will be depressed during this investment phase, our intention
to continue to grow dividends per share annually demonstrates our confidence in
strong future cash flow generation."<o:p abp="1724"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1726" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1727">
<span abp="1728" lang="EN-GB"><span abp="1729" style="font-family: Calibri;">The company has already warned that its margins will be lower and
its cash outflow higher in 2015 than this year. The promise is that heavy
capital spending will bring about an improvement in profitability in the medium
term. </span></span></div>
</div>
<div abp="605">
</div>
<div abp="1731" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1732">
<b abp="1733"><u abp="1734"><span abp="1735" lang="EN-GB" style="color: #c00000;"><span abp="1736" style="font-family: Calibri;">Valuation<o:p abp="1737"></o:p></span></span></u></b></div>
</div>
<div abp="605">
</div>
<div abp="1739" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1740">
<span abp="1741" style="font-family: Calibri;"><b abp="1742"><span abp="1743" lang="EN-GB">At the current price of 192p Vodafone is yielding 5.7%.</span></b><span abp="1744" lang="EN-GB"> But it is not making profits nor is it generating sufficient cash
to pay that dividend. Under these circumstances, my standard valuation model is
of no use in valuing the company's shares.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1746" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1747">
<span abp="1748" style="font-family: Calibri;"><b abp="1749"><span abp="1750" lang="EN-GB">Vodafone's share price has been steadily falling</span></b><span abp="1751" lang="EN-GB"> since the date that shareholders no longer had the right to the
payout from the sale of <b abp="1752">Wireless </b>(this is marked on the graph with a small
black triangle in late February 2014). </span></span></div>
</div>
<div abp="2079" class="separator" style="clear: both; text-align: center;">
<a abp="2080" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtY1W2XD3kided9HKzhq26e1qCmT8-7cYAwyJTsyp-2EzEko82mUG9mX_p0SLhBOgc5vlfeoMUw07c-TCfVSae019CsKBnaJFw6WshhIdgbqAPP3Oe68gJojtUU0pCsQ28EFGUNeUoVNg/s1600/Vod+share+price+2014.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2081" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtY1W2XD3kided9HKzhq26e1qCmT8-7cYAwyJTsyp-2EzEko82mUG9mX_p0SLhBOgc5vlfeoMUw07c-TCfVSae019CsKBnaJFw6WshhIdgbqAPP3Oe68gJojtUU0pCsQ28EFGUNeUoVNg/s1600/Vod+share+price+2014.png" height="176" width="400" /></a></div>
<div abp="605">
</div>
<div abp="1754" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1755">
<span abp="1756" style="font-family: Calibri;"><span abp="1757" style="font-size: 10pt; line-height: 115%; mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="1758" alt="Vod share price 2014.png" id="Picture_x0020_3" o:spid="_x0000_i1025" style="height: 187.5pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75">
<v:imagedata abp="1759" o:title="Vod share price 2014" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></v:shape></span></span><span abp="1765" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1766" style="font-family: Calibri;">Graph courtesy Yahoo,
Vodafone share price in blue compared to FTSE 100 in green, click to enlarge<o:p abp="1767"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1769" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1770">
<span abp="1771" lang="EN-GB"><span abp="1772" style="font-family: Calibri;">Given the parlous state of <b abp="1773">Vodafone'</b>s future as a stand-alone
concern, the only factor supporting the shares is a possible bid. <b abp="1774">Vodafone</b>
has break-up value. A bid could come from <b abp="1775">AT&T</b>, although it has said
it is currently not interested in <b abp="1776">Vodafone</b>, or another, very large
telecommunications company. Or it could come from a well-endowed private equity
firm. In either case, a potential bidder can afford to wait until <b abp="1777">Vodafone's</b>
shares fall to a more attractive level.</span></span></div>
</div>
<div abp="605">
</div>
<div abp="1779" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1780">
<span abp="1781" style="font-family: Calibri;"><b abp="1782"><u abp="1783"><span abp="1784" lang="EN-GB" style="color: #c00000;">Investors in Vodafone should consider</span></u></b><span abp="1785" lang="EN-GB" style="color: #c00000;">:<o:p abp="1786"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1788" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<div abp="1789">
<!--[if !supportLists]--><span abp="1790" lang="EN-GB" style="color: #002060; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1791" style="mso-list: Ignore;"><span abp="1792" style="font-family: Calibri;">1.</span><span abp="1793" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1794" dir="LTR"></span><span abp="1795" lang="EN-GB" style="color: #002060;"><span abp="1796" style="font-family: Calibri;">The attractive dividend yield is not, in the present
trading conditions, sustainable. <o:p abp="1797"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1799" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<div abp="1800">
<!--[if !supportLists]--><span abp="1801" lang="EN-GB" style="color: #002060; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1802" style="mso-list: Ignore;"><span abp="1803" style="font-family: Calibri;">2.</span><span abp="1804" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1805" dir="LTR"></span><span abp="1806" lang="EN-GB" style="color: #002060;"><span abp="1807" style="font-family: Calibri;">Without the share of <b abp="1808">Wirelesses</b> net income <b abp="1809">Vodafone</b>
is no longer profitable.<o:p abp="1810"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1812" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<div abp="1813">
<!--[if !supportLists]--><span abp="1814" lang="EN-GB" style="color: #002060; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1815" style="mso-list: Ignore;"><span abp="1816" style="font-family: Calibri;">3.</span><span abp="1817" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1818" dir="LTR"></span><span abp="1819" style="font-family: Calibri;"><b abp="1820"><span abp="1821" lang="EN-GB" style="color: #002060;">Like-for-like revenues have declined by 6% in the past
two years</span></b><span abp="1822" lang="EN-GB" style="color: #002060;">. Vodafone has spent
14 billion pounds in the last 12 months on acquisitions, which should help to
reverse this decline in revenues. But the company continues to pay a high price
that, on prior experience, may not prove to be justified.<o:p abp="1823"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1825" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<div abp="1826">
<!--[if !supportLists]--><span abp="1827" lang="EN-GB" style="color: #002060; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1828" style="mso-list: Ignore;"><span abp="1829" style="font-family: Calibri;">4.</span><span abp="1830" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1831" dir="LTR"></span><span abp="1832" lang="EN-GB" style="color: #002060;"><span abp="1833" style="font-family: Calibri;"><span abp="1834" style="mso-spacerun: yes;"> </span><b abp="1835">The CEO's plan</b>
is short on concrete objectives that will benefit the shareholder. <o:p abp="1836"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1838" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<div abp="1839">
<!--[if !supportLists]--><span abp="1840" lang="EN-GB" style="color: #002060; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1841" style="mso-list: Ignore;"><span abp="1842" style="font-family: Calibri;">5.</span><span abp="1843" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1844" dir="LTR"></span><span abp="1845" style="font-family: Calibri;"><b abp="1846"><span abp="1847" lang="EN-GB" style="color: #002060;">The company will increase its debt</span></b><span abp="1848" lang="EN-GB" style="color: #002060;">, as it is both committed to a dividend payout
that exceeds its capacity to generate cash and by the 19 billion pound capital
spend set out in <i abp="1849">Project Spring</i>.<o:p abp="1850"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1852" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<div abp="1853">
<!--[if !supportLists]--><span abp="1854" lang="EN-GB" style="color: #002060; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="1855" style="mso-list: Ignore;"><span abp="1856" style="font-family: Calibri;">6.</span><span abp="1857" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1858" dir="LTR"></span><span abp="1859" style="font-family: Calibri;"><b abp="1860"><span abp="1861" lang="EN-GB" style="color: #002060;">The share price is likely to fluctuate</span></b><span abp="1862" lang="EN-GB" style="color: #002060;"> in relation to bid rumours rather than
trading results. The share price is inherently unstable. <o:p abp="1863"></o:p></span></span></div>
</div>
<div abp="605">
</div>
<div abp="1865" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1866">
<b abp="1867"><i abp="1868"><span abp="1869" lang="EN-GB" style="color: #0f243e; mso-themecolor: text2; mso-themeshade: 128;"><span abp="1870" style="font-family: Calibri;">Disclosure:
I do not hold any long or short positions in Vodafone and I will not do so for
at least 15 days from today.<o:p abp="1871"></o:p></span></span></i></b></div>
</div>
<div abp="605">
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<div abp="1873" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1874">
<span abp="1875" lang="EN-GB"><o:p abp="1876"><span abp="1877" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
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<div abp="1879" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1880">
<span abp="1881" lang="EN-GB"><o:p abp="1882"><span abp="1883" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
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<div abp="1885" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1886">
<span abp="1887" lang="EN-GB"><o:p abp="1888"><span abp="1889" style="font-family: Calibri;"> </span></o:p></span></div>
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<div abp="605">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-54454798403288337352014-05-17T13:53:00.000+01:002014-05-26T10:03:55.734+01:00<div abp="293">
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<h3 abp="294" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="295" lang="PT" style="mso-ansi-language: PT;"><span abp="296" style="color: #20124d;">AstraZeneca PLC and Pfizer Inc.<o:p abp="297"></o:p></span></span></h3>
<div abp="298">
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<div abp="871" class="separator" style="clear: both; text-align: center;">
<span abp="302" style="font-family: Calibri;"><a abp="872" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKO7pk3MlNxxQJ4mIDXnFXnd0-OO90kXijLrRZ_ZkUdP2nI-1lZnxoSK35mY2QAs2FPoQYKT4KF8TwySti71I5HPQuHGeUi7kasCOTLi2VZ33cp2kNvAx1jmLjjFJhUt9c1HkUVrh7ZbA/s1600/Charlespfizer+-+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="873" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKO7pk3MlNxxQJ4mIDXnFXnd0-OO90kXijLrRZ_ZkUdP2nI-1lZnxoSK35mY2QAs2FPoQYKT4KF8TwySti71I5HPQuHGeUi7kasCOTLi2VZ33cp2kNvAx1jmLjjFJhUt9c1HkUVrh7ZbA/s1600/Charlespfizer+-+wiki.jpg" /></a></span></div>
<br />
<div abp="323">
</div>
<div abp="324" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="325" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="326" style="font-family: Calibri;">Mr Charles Pfizer (1824-1906),
courtesy Wikipedia<o:p abp="327"></o:p></span></span></div>
<div abp="328">
</div>
<div abp="329" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="330"><u abp="331"><span abp="332" lang="EN-GB"><span abp="333" style="font-family: Calibri;"><span abp="894" style="color: #741b47;">Pfizer's Offer for AstraZeneca<o:p abp="895"></o:p></span></span></span></u></b></div>
<div abp="335">
</div>
<div abp="336" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="337" style="font-family: Calibri;"><b abp="338"><span abp="339" lang="EN-GB">Big pharmaceutical companies have been buying each other or merging
for many years</span></b><span abp="340" lang="EN-GB">. </span></span></div>
<div abp="341">
</div>
<div abp="342" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="343" style="font-family: Calibri;"><b abp="344"><span abp="345" lang="EN-GB">AstraZeneca</span></b><span abp="346" lang="EN-GB"> <b abp="347">(AZN)</b> is itself the
product of a merger between large British and Swedish companies. And <b abp="348">Pfizer</b>
and <b abp="349">AZN</b> are serial acquirers. The reasons for this merger and
acquisition activity in 'Big Pharma' are well known. As patents expire and
generic competition drives down the price of drugs and as the return on
research and development has declined, a sector that was once associated with
steady organic growth fell into decline. Between 2011 and 2013 revenues fell at
both<b abp="350"> Pfizer</b> and <b abp="351">AZN</b>. One of the ways these companies can respond
is to buy or merge with others and then reduce costs by, essentially, reducing
staff.</span></span></div>
<div abp="352">
</div>
<div abp="353" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="354" style="font-family: Calibri;"><b abp="355"><span abp="356" lang="EN-GB">So Pfizer's offer to buy AZN is par for the course</span></b><span abp="357" lang="EN-GB">. <b abp="358">Pfizer</b> is the largest company by pharmaceutical revenues
and the fourth by R&D spend in the world. By the same measure, <b abp="359">AZN </b>is
the sixth largest by pharmaceutical revenue and the ninth by R&D spend in
the world.</span></span></div>
<div abp="360">
</div>
<div abp="361" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="362" style="font-family: Calibri;"><b abp="363"><span abp="364" lang="EN-GB">But Pfizer has a further consideration - US corporation tax. </span></b><span abp="365" lang="EN-GB">Last month <b abp="366">Pfizer</b> reported that it had $69 billion cash
outside the USA. If it were to repatriate this amount, <b abp="367">Pfizer</b> would have
to pay US corporation tax at 35% on the $69 billion less the tax it had paid
internationally. In the last three years, <b abp="368">Pfizer</b> has paid an average of
14.6% to non-US jurisdictions on its international earnings. This suggests that
<b abp="369">Pfizer</b> would have to pay around $16.5 billion on its international cash
pile if it chose to repatriate all the funds to the USA. (This is calculated by
grossing up the $69 billion for the overseas tax and applying a tax rate of
20.4% - 35% less the 14.6% satisfied in other jurisdictions).</span></span></div>
<div abp="370">
</div>
<div abp="371" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="372" style="font-family: Calibri;"><b abp="373"><span abp="374" lang="EN-GB">This hypothetical charge of $16.5 billion</span></b><span abp="375" lang="EN-GB"> compares to the company's average annual ordinary pre-tax profit of
$12.8 billion between 2011 and 2013. If, instead, <b abp="376">Pfizer</b> uses these
funds to make an overseas purchase, such as <b abp="377">AZN</b>, then it will escape this
charge for US corporation tax.</span></span></div>
<div abp="378">
</div>
<div abp="379" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="380" style="font-family: Calibri;"><b abp="381"><span abp="382" lang="EN-GB">Further, given the large difference between UK corporation tax at
20%</span></b><span abp="383" lang="EN-GB"> (from 2015) and US corporation tax at 35%, <b abp="384">Pfizer</b>
would move its tax domicile from the USA to the UK. This follows in the
footsteps of the US company <span abp="385" style="mso-spacerun: yes;"> </span><b abp="386">SmithKline
Beckman (SKB)</b> which merged with <b abp="387">Beechams</b> of the UK in 1989 and then
moved to London. The difference is that in 1989 the respective corporation tax
rates were 35% in the UK and 38.7% in the USA . Also, <b abp="388">SKB</b> moved its HQ
and listing to London, which <b abp="389">Pfizer </b>does not plan to do. </span></span></div>
<div abp="390">
</div>
<div abp="391" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="392" style="font-family: Calibri;"><b abp="393"><span abp="394" lang="EN-GB">No one questions the legality of Pfizer's proposals</span></b><span abp="395" lang="EN-GB">. But <b abp="396">Pfizer</b> has declared losses of $9 billion in the USA in
the past 3 years, while reporting $43 billion profit internationally - and yet America
accounts for about 40% of the world's market for pharmaceutical products. In
recent years tax avoidance has become much more of an ethical issue for the
public, politicians and the media and, as a consequence, for company directors.
And both the UK and Swedish authorities are worried about the reduction in
staff, including those engaged on research and development, that will
inevitably follow any <b abp="397">AZN</b> acquisition.</span></span></div>
<div abp="398">
</div>
<div abp="399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="400" style="font-family: Calibri;"><b abp="401"><span abp="402" lang="EN-GB">The industrial logic for the proposed merger, at least at 50 pounds
a share for AZN, is not supported by Pfizer shareholders </span></b><span abp="403" lang="EN-GB">(<b abp="404">Pfizer</b> share price in blue, <b abp="405">AZN</b> share price in red):</span></span></div>
<div abp="406">
</div>
<div abp="407" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="408" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="409" alt="Pfizer Vs AZN share price Yahoo.png" id="Picture_x0020_4" o:spid="_x0000_i1027" style="height: 162.75pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="410" style="font-family: Calibri;">
<v:imagedata abp="411" o:title="Pfizer Vs AZN share price Yahoo" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.png">
</v:imagedata></span></v:shape></span><br />
<div abp="896" class="separator" style="clear: both; text-align: center;">
<span abp="410" style="font-family: Calibri;"><a abp="897" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSnXgNJaY1kLW4-TRkQqXrkOfJ7ABPExioqMxdA8TqwN0UY02mJ7oFGkVTHthuvFu7_fhRPRZj9r9MHaIsOBYvZyRlUNcRGxoL7h6qU82OfFqREeJ-jFXZ_zzxod9NIS4HZCCtSf7Pqcs/s1600/Pfizer+Vs+AZN+share+price+Yahoo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="898" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSnXgNJaY1kLW4-TRkQqXrkOfJ7ABPExioqMxdA8TqwN0UY02mJ7oFGkVTHthuvFu7_fhRPRZj9r9MHaIsOBYvZyRlUNcRGxoL7h6qU82OfFqREeJ-jFXZ_zzxod9NIS4HZCCtSf7Pqcs/s1600/Pfizer+Vs+AZN+share+price+Yahoo.png" height="152" width="400" /></a></span></div>
<br />
<div abp="412">
</div>
<div abp="413" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="414" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="415" style="font-family: Calibri;">Graph courtesy Yahoo, click to
enlarge<o:p abp="416"></o:p></span></span></div>
<div abp="417">
</div>
<div abp="418" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="419" style="font-family: Calibri;"><b abp="420"><span abp="421" lang="EN-GB">The individual investor will consider, in the short term</span></b><span abp="422" lang="EN-GB">:</span></span></div>
<div abp="423">
</div>
<div abp="424" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="425" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="426" style="mso-list: Ignore;">Ø<span abp="427" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="428" dir="LTR"></span><span abp="429" lang="EN-GB"><span abp="430" style="font-family: Calibri;">Does the current share price of 48.23 pounds
(or the proposed purchase price of 50 pounds a share or whatever is the final
offer) exceed the value he or she places on <b abp="431">AZN</b>?</span></span></div>
<div abp="432">
</div>
<div abp="433" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l3 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="434" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="435" style="mso-list: Ignore;">Ø<span abp="436" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="437" dir="LTR"></span><span abp="438" lang="EN-GB"><span abp="439" style="font-family: Calibri;">Would it make sense to invest some or all of
the proceeds from a sale in the new enlarged company?</span></span></div>
<div abp="440">
</div>
<div abp="441" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="442" lang="EN-GB"><span abp="443" style="font-family: Calibri;">----------------------------------------------------------------------------------------------------</span></span></div>
<div abp="444">
</div>
<h3 abp="445" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="447" lang="EN-GB"><span style="color: #660000;">AstraZeneca
PLC<o:p abp="449"></o:p></span></span></h3>
<div abp="450">
</div>
<div abp="985" class="separator" style="clear: both; text-align: center;">
<a abp="986" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9DEDfc3ZFqG4IXTBOVjbCQWqxieiUPxNRN7hOEk8Zcp3eycSZ8Zw9wndP_i4vxz5LxvTtSQUZQRU_KCnE0JSi-GvWmhAwz1_xpopF3aZ4LDDi0-n5MNVm4JJogCrXVNZnOX9Qt12B2-U/s1600/800px-AstraZeenca+R&D+facilities+in+M%C3%B6lndal,+Sweden+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="987" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9DEDfc3ZFqG4IXTBOVjbCQWqxieiUPxNRN7hOEk8Zcp3eycSZ8Zw9wndP_i4vxz5LxvTtSQUZQRU_KCnE0JSi-GvWmhAwz1_xpopF3aZ4LDDi0-n5MNVm4JJogCrXVNZnOX9Qt12B2-U/s1600/800px-AstraZeenca+R&D+facilities+in+M%C3%B6lndal,+Sweden+wiki.jpg" height="240" width="320" /></a></div>
<div abp="451" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="458" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="459" style="font-family: Calibri;">AstraZeneca R&D facilities, in
Mölndal, Sweden, courtesy Wikipedia<o:p abp="460"></o:p></span></span></div>
<div abp="461">
</div>
<div abp="462" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="463" style="font-family: Calibri;"><b abp="464"><span abp="465" lang="EN-GB">AstraZeneca (AZN),</span></b><span abp="466" lang="EN-GB"> unlike many other
large pharmaceutical companies, relies entirely on the sale of medicines for
its survival. The company divides its activity into four therapeutic areas:
cardiovascular and diabetes; cancer; respiration, inflammation and autoimmunity;
and infection, neuroscience and gastrointestinal.</span></span></div>
<div abp="467">
</div>
<div abp="468" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="469" style="font-family: Calibri;"><b abp="470"><span abp="471" lang="EN-GB">While trading results have been generally disappointing, AZN
continues to be cash generating. </span></b><span abp="472" lang="EN-GB">Taking 2006 as a
base year:</span></span></div>
<div abp="473">
</div>
<div abp="474" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="475" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="476" style="mso-list: Ignore;">·<span abp="477" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="478" dir="LTR"></span><span abp="479" style="font-family: Calibri;"><b abp="480"><span abp="481" lang="EN-GB">Revenues</span></b><span abp="482" lang="EN-GB"> in 2013 were 3% below 2006 and 24% below 2011.</span></span></div>
<div abp="483">
</div>
<div abp="484" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="485" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="486" style="mso-list: Ignore;">·<span abp="487" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="488" dir="LTR"></span><span abp="489" style="font-family: Calibri;"><b abp="490"><span abp="491" lang="EN-GB">AZN
bought back 20% of its shares</span></b><span abp="492" lang="EN-GB"> in this period at an
average cost of $48 per share. As a result, <b abp="493">earnings per share have</b>
increased by 2% since 2006, once large impairment and restructuring charges are
excluded from the 2013 results. However, 2013 EPS are 37% below the level of
2011.</span></span></div>
<div abp="494">
</div>
<div abp="495" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="496" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="497" style="mso-list: Ignore;">·<span abp="498" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="499" dir="LTR"></span><span abp="500" style="font-family: Calibri;"><b abp="501"><span abp="502" lang="EN-GB">In 2006
the company held net cash of $5.9 billion</span></b><span abp="503" lang="EN-GB"> compared
to $0.4 billion net debt in 2013.</span></span></div>
<div abp="504">
</div>
<div abp="505" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="506" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="507" style="mso-list: Ignore;">·<span abp="508" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="509" dir="LTR"></span><span abp="510" style="font-family: Calibri;"><b abp="511"><span abp="512" lang="EN-GB">AZN has
increased its annual dividend</span></b><span abp="513" lang="EN-GB"> by an average of 7%
per annum. 2013 was the first year that saw no increase in its dividend.</span></span></div>
<div abp="514">
</div>
<div abp="515" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="516" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="517" style="mso-list: Ignore;">·<span abp="518" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="519" dir="LTR"></span><span abp="520" style="font-family: Calibri;"><b abp="521"><span abp="522" lang="EN-GB">Return
on equity</span></b><span abp="523" lang="EN-GB">, which was 40% in 2006 has declined to 22%
in 2013. While this is still an excellent return, the return on retained
earnings (new equity) over this period has fallen to 7%. If this poor return on
new capital continues, AZN's profitability and cash generation will suffer. </span></span></div>
<div abp="524">
</div>
<div abp="525" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="526" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="527" style="mso-list: Ignore;">·<span abp="528" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="529" dir="LTR"></span><span abp="530" style="font-family: Calibri;"><b abp="531"><span abp="532" lang="EN-GB">Over
the last 5 years, net operating cash flow</span></b><span abp="533" lang="EN-GB"> has
covered the dividend by 1.9 times, leaving almost $16 billion for share buy
backs and acquisitions.</span></span></div>
<div abp="534">
</div>
<div abp="535" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="536" style="font-family: Calibri;"><b abp="537"><span abp="538" lang="EN-GB">In the past five years, AZN shares (in blue) have underperformed the
FTSE 100 (in red)</span></b><span abp="539" lang="EN-GB"> until <b abp="540">Pfizer</b> came along
with its offer:</span></span></div>
<div abp="541">
</div>
<div abp="989" class="separator" style="clear: both; text-align: center;">
<a abp="990" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQVgeZJsJ7kTNbVZkbqXIj8aC6YQT6UEg7nG5b2ZnU9EoIONf3z4PzXQEpXNFbyZQZSV0yMSElx87dj3Qkn1RMmE9PeC11bBAIEw4EPc6e7Jp-Xy79H3C2dqyaj92jedKZNWKlNMAIrbg/s1600/AZN+Vs+FTSE+Yahoo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="991" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQVgeZJsJ7kTNbVZkbqXIj8aC6YQT6UEg7nG5b2ZnU9EoIONf3z4PzXQEpXNFbyZQZSV0yMSElx87dj3Qkn1RMmE9PeC11bBAIEw4EPc6e7Jp-Xy79H3C2dqyaj92jedKZNWKlNMAIrbg/s1600/AZN+Vs+FTSE+Yahoo.png" height="155" width="400" /></a></div>
<div abp="542" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="543" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="544" alt="AZN Vs FTSE Yahoo.png" id="Picture_x0020_2" o:spid="_x0000_i1025" style="height: 165.75pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="545" style="font-family: Calibri;">
<v:imagedata abp="546" o:title="AZN Vs FTSE Yahoo" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></span></v:shape></span></div>
<div abp="547" style="text-align: center;">
<span abp="549" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="550" style="font-family: Calibri;">Graph courtesy Yahoo, click to
enlarge<o:p abp="551"></o:p></span></span></div>
<div abp="552">
</div>
<div abp="553" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="554" style="font-family: Calibri;"><b abp="555"><span abp="556" lang="EN-GB">At the current price of 48.23 pounds</span></b><span abp="557" lang="EN-GB">, <b abp="558">AZN</b>
shares trade on an adjusted PE ratio of 20 and yield 3.5%. The two main
adjustments in 2013 are a $1.8 billion impairment charge for sales of a new
drug, which are "below commercial expectations", and a $1.4 billion
charge for restructuring. Include these charges and <b abp="559">AZN</b>'s historical PE
ratio rises to 40.</span></span></div>
<div abp="560">
</div>
<div abp="561" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="562" style="font-family: Calibri;"><b abp="563"><span abp="564" lang="EN-GB">The Chairman gives a sobering account of the state of his industry
in the 2013 Annual Report</span></b><span abp="565" lang="EN-GB">: </span><span abp="566" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">"The world pharmaceutical market
is still growing and underlying demographic trends remain favourable to
long-term industry growth. However, many of the drivers of demand and supply in
the industry are under pressure. On the demand side, we face increased
competition from generic drugs as some of the world’s most successful medicines
come off patent. In addition, securing recognition (through reimbursement
approval) and reward for innovation (through favourable pricing and sales) is
becoming more difficult in the face of intense pricing pressures, particularly
in Established Markets facing rising healthcare costs. On the supply side, the
industry faces an ongoing R&D productivity challenge. R&D costs have
risen significantly over the past decade, while industry-wide probability of
success of new medicines, though showing some recent signs of improvement, has
not kept pace."<o:p abp="567"></o:p></span></span></div>
<div abp="568">
</div>
<div abp="569" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="570"><span abp="571" lang="EN-GB"><span abp="572" style="font-family: Calibri;">Against this background, the outlook for AZN is not good. Consider:<o:p abp="573"></o:p></span></span></b></div>
<div abp="574">
</div>
<div abp="575" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="576" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="577" style="mso-list: Ignore;"><span abp="578" style="font-family: Calibri;">1.</span><span abp="579" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="580" dir="LTR"></span><span abp="581" style="font-family: Calibri;"><b abp="582"><span abp="583" lang="EN-GB">The
company's three largest selling drugs</span></b><span abp="584" lang="EN-GB">, <i abp="585">Symbicort</i>
for asthma, <i abp="586">Nexium</i> for acid-reflux and <i abp="587">Crestor</i> for managing
cholesterol levels, account for over half of <b abp="588">AZN</b>'s sales. The first two
will lose patent protection in 2014 and <i abp="589">Crestor</i>'s main patents expire in
2016. Sales will fall dramatically. <b abp="590">AZN</b> has not been able to develop or
acquire new drugs to replace these three 'blockbusters'.</span></span></div>
<div abp="591">
</div>
<div abp="592" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<span abp="593" lang="EN-GB"><o:p abp="594"><span abp="595" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="596">
</div>
<div abp="597" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="598" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="599" style="mso-list: Ignore;"><span abp="600" style="font-family: Calibri;">2.</span><span abp="601" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="602" dir="LTR"></span><span abp="603" style="font-family: Calibri;"><b abp="604"><span abp="605" lang="EN-GB">World
pharmaceutical sales increased by 2.7% in 2012 and by 2.5% in 2013</span></b><span abp="606" lang="EN-GB">. The company cites the projections for world drug sales by the
consultancy <b abp="607">IMS Health</b>. <b abp="608">IMS</b> expects global sales to increase by
8.6% per annum from now to 2017. <b abp="609">AZN</b> might be disappointed.</span></span></div>
<div abp="610">
</div>
<div abp="611" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<span abp="612" lang="EN-GB"><o:p abp="613"><span abp="614" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="615">
</div>
<div abp="616" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="617" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="618" style="mso-list: Ignore;"><span abp="619" style="font-family: Calibri;">3.</span><span abp="620" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="621" dir="LTR"></span><span abp="622" style="font-family: Calibri;"><b abp="623"><span abp="624" lang="EN-GB">AZN's
new CEO expects core earnings per share to decline</span></b><span abp="625" lang="EN-GB">
by the mid-teens, in percentage points, in 2014. His objective is that, by
2017, the company will have recovered the level of sales it reached in 2013,
which was 24% below 2011's sales.</span></span></div>
<div abp="626">
</div>
<div abp="627" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="628" lang="EN-GB"><span abp="629" style="font-family: Calibri;">As it can take ten years to develop, test and receive the final
approval of the regulators for a drug before it can be marketed, the
traditional pharmaceutical business is only affordable for large companies
willing to take the long view of their business.</span></span></div>
<div abp="630">
</div>
<div abp="631" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="632" style="font-family: Calibri;"><b abp="633"><span abp="634" lang="EN-GB">AZN appointed a new CEO in October 2012. He has set three strategic
priorities</span></b><span abp="635" lang="EN-GB">: </span></span></div>
<div abp="636">
</div>
<div abp="637" class="MsoListParagraph" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l4 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="638" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;"><span abp="639" style="mso-list: Ignore;">Ø<span abp="640" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="641" dir="LTR"></span><b abp="642"><span abp="643" lang="EN-GB"><span abp="644" style="font-family: Calibri;"><span abp="645" style="mso-spacerun: yes;"> </span><span style="color: #741b47;">Achieve Scientific Leadership<o:p abp="646"></o:p></span></span></span></b></div>
<div abp="647">
</div>
<div abp="648" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="649" lang="EN-GB"><span abp="650" style="font-family: Calibri;">The company will focus on cardiovascular diseases and diabetes;
cancer; and respiration, inflammation and autoimmunity. It believes it has the
best opportunities of developing new drugs in these three areas and it will
support them via two autonomous biotech units and 'novel' science. It has set
goals for Phase II trials. <b abp="651">AZN</b> is moving its corporate headquarters and
global science centre to the Biomedical Campus in Cambridge. Here it will have
direct access to academic scientists, which the CEO believes can contribute in
the early stages of R&D.</span></span></div>
<div abp="652">
</div>
<div abp="653" class="MsoListParagraph" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="654" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-bidi-font-weight: bold; mso-fareast-font-family: Wingdings;"><span abp="655" style="mso-list: Ignore;">Ø<span abp="656" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="657" dir="LTR"></span><b abp="658"><span abp="659" lang="EN-GB"><span abp="660" style="font-family: Calibri;"><span style="color: #741b47;">Return to Growth<o:p abp="661"></o:p></span></span></span></b></div>
<div abp="662">
</div>
<div abp="663" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="664" lang="EN-GB"><span abp="665" style="font-family: Calibri;">New goals for specific drugs that it believes offer the best
opportunities in certain specific markets. It is seeking to accelerate growth
through larger scale product in-licensing and partnerships, and with bolt-on
acquisitions.</span></span></div>
<div abp="666">
</div>
<div abp="667" class="MsoListParagraph" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l6 level1 lfo6; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="668" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="669" style="mso-list: Ignore;">Ø<span abp="670" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="671" dir="LTR"></span><span abp="672" style="font-family: Calibri;"><b abp="673"><span abp="674" lang="EN-GB"><span style="color: #741b47;">Be a Great Place to Work</span></span></b><span abp="675" lang="EN-GB">.</span></span></div>
<div abp="676">
</div>
<div abp="677" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="678" lang="EN-GB"><span abp="679" style="font-family: Calibri;">The failure of many of <b abp="680">AZN</b>'s new drugs to get beyond Phase
III - the last testing phase - prior to regulatory approval has sapped the
enthusiasm of its staff. And, despite acquiring many new businesses, the number
of employees has fallen by almost a quarter since 2006. By flattening the
organizational chart, simplifying procedures, communicating directly with staff
and focussing on 'talent and leadership', the hope is that staff morale and
productivity will improve.</span></span></div>
<div abp="681">
</div>
<div abp="682" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="683" style="font-family: Calibri;"><b abp="684"><span abp="685" lang="EN-GB">However, AZN</span></b><span abp="686" lang="EN-GB"> <b abp="687">will</b>, over four
years, cut 10% of its staff at a cost of $2.5 billion to realise an annual cost
saving of $800 million.</span></span></div>
<div abp="688">
</div>
<div abp="689" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="690" style="font-family: Calibri;"><b abp="691"><span abp="692" lang="EN-GB">Assuming that revenues and earnings recover to 2013 levels by 2017,
my model values AZN shares at less than 30 pounds</span></b><span abp="693" lang="EN-GB">. No
doubt <b abp="694">AZN</b> is worth more to an industrial buyer which is also aiming to
save large sums in tax. </span></span></div>
<div abp="695">
</div>
<div abp="696" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="697" style="font-family: Calibri;"><b abp="698"><span abp="699" lang="EN-GB">AZN shareholders should also consider the risks attached to AZN as
an independent company</span></b><span abp="700" lang="EN-GB">:</span></span></div>
<div abp="701">
</div>
<div abp="702" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="703" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="704" style="mso-list: Ignore;"><span abp="705" style="font-family: Calibri;">1.</span><span abp="706" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="707" dir="LTR"></span><span abp="708" style="font-family: Calibri;"><b abp="709"><span abp="710" lang="EN-GB">The new
CEO's plans look positive</span></b><span abp="711" lang="EN-GB"> but they cannot be valued
by an outsider. The essence of the business, as outlined above by the Chairman,
is not going to change and this must cause any investor to wonder whether the
CEO's seemingly modest objectives are realisable.</span></span></div>
<div abp="712">
</div>
<div abp="713" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="714" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="715" style="mso-list: Ignore;"><span abp="716" style="font-family: Calibri;">2.</span><span abp="717" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="718" dir="LTR"></span><span abp="719" style="font-family: Calibri;"><b abp="720"><span abp="721" lang="EN-GB">Net
sales have declined from 55.6% of gross sales in 2011 to 45.4% in 2013</span></b><span abp="722" lang="EN-GB">. The huge and widening difference between the two reflect the
increasing burden of chargebacks (from wholesalers) and rebates (from managed
care and group purchasing organisations). This loss of pricing power reflects
the difficult market that drug companies now face.</span></span></div>
<div abp="723">
</div>
<div abp="724" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="725" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="726" style="mso-list: Ignore;"><span abp="727" style="font-family: Calibri;">3.</span><span abp="728" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="729" dir="LTR"></span><span abp="730" style="font-family: Calibri;"><b abp="731"><span abp="732" lang="EN-GB">Capitalised
product marketing and distribution rights</span></b><span abp="733" lang="EN-GB"> have risen
from $9.7 billion to $14.6 billion in three years. 2013 results were hit with a
$1.8 billion impairment charge and further impairment charges could be in the
offing.</span></span></div>
<div abp="734">
</div>
<div abp="735" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="736" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="737" style="mso-list: Ignore;"><span abp="738" style="font-family: Calibri;">4.</span><span abp="739" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="740" dir="LTR"></span><span abp="741" style="font-family: Calibri;"><b abp="742"><span abp="743" lang="EN-GB">Moody's
downgraded AZN's</span></b><span abp="744" lang="EN-GB"> credit rating for long-term
unsecured debt from A1 to A2 in April 2012. The credit rating agency cited the
loss of patent protection as its main concern.</span></span></div>
<div abp="745">
</div>
<div abp="746" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l5 level1 lfo7; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="747" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="748" style="mso-list: Ignore;"><span abp="749" style="font-family: Calibri;">5.</span><span abp="750" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="751" dir="LTR"></span><span abp="752" style="font-family: Calibri;"><b abp="753"><span abp="754" lang="EN-GB">The
company's defined benefit pension schemes</span></b><span abp="755" lang="EN-GB"> are in
deficit to the value of $2.2 billion. While the schemes have been closed to new
entrants since 2000, they will most likely require further funding.</span></span></div>
<div abp="756">
</div>
<div abp="757" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 18pt; text-align: justify;">
<span abp="758" lang="EN-GB"><o:p abp="759"><span abp="760" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="761">
</div>
<div abp="762" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="763" lang="EN-GB"><o:p abp="764"><span abp="765" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="766">
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com2tag:blogger.com,1999:blog-6123577473607160262.post-18858939921009647352014-05-09T09:28:00.007+01:002014-05-09T09:31:34.936+01:00<div abp="293">
</div>
<h3 abp="294" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="295" lang="EN-GB"><span abp="296" style="color: #20124d;">The
Value of Brands<o:p abp="297"></o:p></span></span></h3>
<div abp="298">
</div>
<h4 abp="299" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="300" lang="EN-GB"><span abp="301"><span style="color: #990000;">And
PZ Cussons PLC<o:p abp="302"></o:p></span></span></span></h4>
<div abp="303">
</div>
<div abp="930" class="separator" style="clear: both; text-align: center;">
<a abp="931" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhz_F8lGmN09oGq5WrcWa7qo-02kp-7dLUKwh0k_6pNDP6Kei6swgF4w4yfQO6m08MxxbH8ugLGW9pCw4NpTH1egw2by2x5OaSKS1x6GgWSQqPPVdeQak6-slD2qRnnfTz27Ew91PNJm9U/s1600/white+cloud+toilet+paper+walmart+website.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="932" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhz_F8lGmN09oGq5WrcWa7qo-02kp-7dLUKwh0k_6pNDP6Kei6swgF4w4yfQO6m08MxxbH8ugLGW9pCw4NpTH1egw2by2x5OaSKS1x6GgWSQqPPVdeQak6-slD2qRnnfTz27Ew91PNJm9U/s1600/white+cloud+toilet+paper+walmart+website.png" /></a></div>
<div abp="306" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="307" style="mso-ansi-language: ES; mso-no-proof: yes;"></span> </div>
<div abp="329" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="330" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="331" style="font-family: Calibri;">Image
courtesy Walmart website<o:p abp="332"></o:p></span></span></div>
<div abp="333">
</div>
<div abp="334" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="335" lang="EN-GB"><o:p abp="336"><span abp="337" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="339" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="340" style="font-family: Calibri;"><b abp="341"><span abp="342" lang="EN-GB">Proctor & Gamble (P&G) once commercialised two big American
brands of toilet paper</span></b><span abp="343" lang="EN-GB">. Charmin was the market
leader and White Cloud ranked seventh. In 1992, P&G stopped selling White
Cloud to concentrate its marketing efforts on Charmin. Its ownership of the
White Cloud brand was allowed to lapse and White Cloud was reregistered by a
company called <b abp="344">Paper Partners</b>.</span></span></div>
<div abp="345">
</div>
<div abp="346" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="347" style="font-family: Calibri;"><b abp="348"><span abp="349" lang="EN-GB">Paper Partners</span></b><span abp="350" lang="EN-GB"> (renamed White Cloud
Marketing) gave the exclusive US license of White Cloud to <b abp="351">Wal-Mart Stores
Inc</b>., in exchange for a royalty. Simultaneously, it gave exclusive
manufacturing rights to <b abp="352">Scott Paper</b> of Canada (now Kruger
Products).<span abp="353" style="mso-spacerun: yes;"> </span><b abp="354">Walmart</b> marketed White
Cloud as its premium own-label brand and sales reached $600 million in 2008. In
2012, White Cloud was voted the best toilet paper in a US <i abp="355">Consumer Report</i>
survey. Today the brand's sales, which include tissues, wipes and nappies, top
$1 billion. Charmin continues to be the best-selling toilet paper in America,
but the fact that <b abp="356">Walmart</b> was willing to pay a royalty to use the White
Cloud brand illustrates the value of its name. </span></span></div>
<div abp="357">
</div>
<div abp="358" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="359" style="font-family: Calibri;"><b abp="360"><span abp="361" lang="EN-GB">Himmel Brands</span></b><span abp="362" lang="EN-GB"> of Florida has been
revitalising discarded brands for fifty years. To a UK consumer, their
best-known revival is Ovaltine. </span><b abp="363"><span abp="364" style="mso-ansi-language: ES;">Himmel
identifies brands that: </span><span abp="365" lang="EN-GB"><o:p abp="366"></o:p></span></b></span></div>
<div abp="367">
</div>
<div abp="368" class="MsoListParagraph" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo6; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="369" style="font-family: Wingdings; mso-ansi-language: ES; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="370" style="mso-list: Ignore;">Ø<span abp="371" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="372" dir="LTR"></span><span abp="373" style="font-family: Calibri;"><span abp="374" lang="EN-GB">Have</span><span abp="375" style="mso-ansi-language: ES;">
a rich heritage<o:p abp="376"></o:p></span></span></div>
<div abp="377">
</div>
<div abp="378" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l3 level1 lfo1; tab-stops: list 36.0pt; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="379" style="font-family: Wingdings; font-size: 10pt; line-height: 115%; mso-ansi-language: ES; mso-bidi-font-family: Wingdings; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: Wingdings;"><span abp="380" style="mso-list: Ignore;">Ø<span abp="381" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="382" dir="LTR"></span><span abp="383" style="mso-ansi-language: ES;"><span abp="384" style="font-family: Calibri;">Have withstood the test of time<o:p abp="385"></o:p></span></span></div>
<div abp="386">
</div>
<div abp="387" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l3 level1 lfo1; tab-stops: list 36.0pt; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="388" style="font-family: Wingdings; font-size: 10pt; line-height: 115%; mso-ansi-language: ES; mso-bidi-font-family: Wingdings; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: Wingdings;"><span abp="389" style="mso-list: Ignore;">Ø<span abp="390" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="391" dir="LTR"></span><span abp="392" style="mso-ansi-language: ES;"><span abp="393" style="font-family: Calibri;">Have been neglected<o:p abp="394"></o:p></span></span></div>
<div abp="395">
</div>
<div abp="396" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="397" style="font-family: Calibri;"><b abp="398"><span abp="399" lang="EN-GB">A brand is a slippery thing to value</span></b><span abp="400" lang="EN-GB">. Traditional
accounting methods used by marketeers end up by giving the greatest value to
the biggest companies - today <b abp="401">Apple </b>tops the table for brand value in
the USA<b abp="402">.</b> Consumers are notoriously fickle. It might surprise many readers
to learn that, according to a 2014 survey of consumers undertaken by the Centre
for Brand Analysis and a panel of experts, <b abp="403">British Airways</b> and <b abp="404">Rolex</b>
take the two top spots for the best brands in the UK. Consumers rate <b abp="405">Apple</b>
at 14th, behind the <b abp="406">BBC</b> (4th), <b abp="407">Heinz</b> (5th) and <b abp="408">Andrex</b>
(12th). Kimberley-Clark, the American owner of <b abp="409">Andrex</b>, must be chuffed
to find their brand of toilet paper two places ahead of <b abp="410">Apple</b>, four
places ahead of <b abp="411">Nike</b> and eight places ahead of <b abp="412">Mercedes Benz</b> in
the heart of the British consumer. Could this be thanks to the adorable Golden
Labrador puppy they use in their ads? </span></span></div>
<div abp="413">
</div>
<div abp="414" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="415" style="font-family: Calibri;"><b abp="416"><span abp="417" lang="EN-GB">Other brands seem to have high value but make little money for their
owners</span></b><span abp="418" lang="EN-GB">. Brand Finance awarded <b abp="419">Ferrari</b> the
world's most powerful brand in 2014. It scored highest for "desirability,
loyalty and consumer sentiment to visual identity, online presence and employee
satisfaction". Yet <b abp="420">Ferrari</b>'s earnings before interest, tax and
depreciation were a modest $385 million in 2013 (it is part of Fiat Chrysler).
In terms of value, it ranks 350th of all brands in the same report. <b abp="421">Ferrari </b>has
not discovered how to monetise its great brand.</span></span></div>
<div abp="422">
</div>
<div abp="423" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="424" lang="EN-GB"><span abp="425" style="font-family: Calibri;">The charm of brands is their long-term income-generating power, which
is a powerful draw for the investor. Yet only those brands that have been bought
from a third party have any recognised value in a company's accounts. Brands
that have been created by a company have no asset value at all. Which is why company
valuations based on net assets have little relevance for the investor in brand
heavy companies. </span></span></div>
<div abp="426">
</div>
<div abp="427" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="428"><span abp="429" lang="EN-GB"><span abp="430" style="font-family: Calibri;">Investors would be wise to give special value to brands:<span abp="431" style="mso-spacerun: yes;"> </span><o:p abp="432"></o:p></span></span></b></div>
<div abp="433">
</div>
<div abp="434" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="435" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="436" style="mso-list: Ignore;">·<span abp="437" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="438" dir="LTR"></span><span abp="439" style="font-family: Calibri;"><b abp="440"><span abp="441" lang="EN-GB">Which
are stand-alone.</span></b><span abp="442" lang="EN-GB"> <b abp="443">BMW</b> is a top brand but it
is useless without the technical and manufacturing skills and facilities required
to design and make its cars. On the other hand, if <b abp="444">Colgate-Palmolive </b>sold
its brand of toothpaste to another concern, the new company could, without too much
difficulty, continue to realise its value.</span></span></div>
<div abp="445">
</div>
<div abp="446" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="447" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="448" style="mso-list: Ignore;">·<span abp="449" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="450" dir="LTR"></span><span abp="451" style="font-family: Calibri;"><b abp="452"><span abp="453" lang="EN-GB">That
are first in their market sectors</span></b><span abp="454" lang="EN-GB">. They are worth
far more than those that rank second, which in turn are worth far more than
that rank third, and so on.</span></span></div>
<div abp="455">
</div>
<div abp="456" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="457" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="458" style="mso-list: Ignore;">·<span abp="459" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="460" dir="LTR"></span><span abp="461" style="font-family: Calibri;"><b abp="462"><span abp="463" lang="EN-GB">Which
transcend national boundaries</span></b><span abp="464" lang="EN-GB">. This is the strength
behind <b abp="465">Coca-Cola's</b> brand.</span></span></div>
<div abp="466">
</div>
<div abp="467" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="468" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="469" style="mso-list: Ignore;">·<span abp="470" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="471" dir="LTR"></span><span abp="472" style="font-family: Calibri;"><b abp="473"><span abp="474" lang="EN-GB">That
are found in market clusters within the same company</span></b><span abp="475" lang="EN-GB">. <b abp="476">Cadbury</b> was valued by <b abp="477">Kraft</b> for the multiple brands
under the <b abp="478">Cadbury</b> label (Dairy Milk, Fruit & Nut, Bourneville, Wispa
etc.).</span></span></div>
<div abp="479">
</div>
<div abp="480" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="481" style="font-family: Calibri;"><b abp="482"><span abp="483" lang="EN-GB">Although many companies can claim to own brands</span></b><span abp="484" lang="EN-GB">, few brand-heavy companies are listed on the London Stock Exchange.
Some that have been reviewed in this blog are:</span></span></div>
<div abp="485">
</div>
<div abp="486" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="487" lang="EN-GB"><span abp="488" style="font-family: Calibri;">Reckitt Benckiser - see </span><a abp="489" href="http://thejoyfulinvestor.blogspot.co.uk/2013/05/riskand-asset-allocation-dilemma.html"><span abp="490" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2013/05/riskand-asset-allocation-dilemma.html</span></a></span></div>
<div abp="491">
</div>
<div abp="492" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="493" lang="EN-GB"><span abp="494" style="font-family: Calibri;">A G Barr - see </span><a abp="495" href="http://thejoyfulinvestor.blogspot.co.uk/2013/09/theins-and-outs-of-company-valuation.html"><span abp="496" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2013/09/theins-and-outs-of-company-valuation.html</span></a></span></div>
<div abp="497">
</div>
<div abp="498" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="499" lang="EN-GB"><span abp="500" style="font-family: Calibri;">Unilever - see </span><a abp="501" href="http://thejoyfulinvestor.blogspot.co.uk/2014/01/where-are-we-now-in-stock-market-cycle.html"><span abp="502" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2014/01/where-are-we-now-in-stock-market-cycle.html</span></a></span></div>
<div abp="503">
</div>
<div abp="504" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="505" lang="EN-GB"><span abp="506" style="font-family: Calibri;">Nichols - see </span><a abp="507" href="http://thejoyfulinvestor.blogspot.co.uk/2014/04/aimshares-and-nichols-plc-introduction.html"><span abp="508" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2014/04/aimshares-and-nichols-plc-introduction.html</span></a></span></div>
<div abp="509">
</div>
<div abp="510" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="511" lang="EN-GB"><span abp="512" style="font-family: Calibri;">--------------------------------------------------------------------------------------------------</span></span></div>
<div abp="513">
</div>
<div abp="514" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="515" lang="EN-GB"><o:p abp="516"><span abp="517" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="518">
</div>
<h3 abp="519" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="521" lang="EN-GB"><span style="color: #990000;">PZ
Cussons PLC<o:p abp="523"></o:p></span></span></h3>
<div abp="524">
</div>
<div abp="525" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="526"><span abp="527" lang="EN-GB"><o:p abp="528"><span abp="529" style="font-family: Calibri;"> </span></o:p></span></b><br />
<div abp="953" class="separator" style="clear: both; text-align: center;">
<b abp="526"><span abp="529" style="font-family: Calibri;"><a abp="954" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLH6PdO8H4Typ8i_LIw7sVtdeiSmbgTKZco4ng9bOjc2SHs78mOtLlAREMadLY6eF3uOSsmWnguDcqUbAuRot_cMkFyRrPYAH-iqnkQe7dNJmm3arimPj_bMoEL-UWHttxWwAqBtu2uU8/s1600/Imperial+Leather+Cussons+website.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="955" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLH6PdO8H4Typ8i_LIw7sVtdeiSmbgTKZco4ng9bOjc2SHs78mOtLlAREMadLY6eF3uOSsmWnguDcqUbAuRot_cMkFyRrPYAH-iqnkQe7dNJmm3arimPj_bMoEL-UWHttxWwAqBtu2uU8/s1600/Imperial+Leather+Cussons+website.jpg" /></a></span></b></div>
<br />
<div abp="531" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b abp="532"><span abp="533" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="534" alt="Imperial Leather Cussons website.jpg" id="_x0000_i1026" style="height: 182.25pt; mso-wrap-style: square; visibility: visible; width: 182.25pt;" type="#_x0000_t75"><span abp="535" style="font-family: Calibri;">
<v:imagedata abp="536" o:title="Imperial Leather Cussons website" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.jpg">
</v:imagedata></span></v:shape></span></b></div>
<div abp="538" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="539" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="540" style="font-family: Calibri;">Image
courtesy PZ Cussons website<o:p abp="541"></o:p></span></span></div>
<div abp="542">
</div>
<div abp="543" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="544" lang="EN-GB"><o:p abp="545"><span abp="546" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="547" style="text-align: justify;">
<span abp="549" style="font-family: Calibri;"><b abp="550"><span abp="551" lang="EN-GB">PZ Cussons (PZC) traces its origins to Africa</span></b><span abp="552" lang="EN-GB">, where it was founded in 1879 as a trading post in Sierra Leone. Today
the company specialises in personal care products, which are mainly sold in a
small number of countries. With a market capitalisation of 1.5 billion pounds,
it is far smaller than its main multinational competitors. These include
Proctor and Gamble, Colgate-Palmolive, Johnson & Johnson, Unilever, Reckitt
Benckiser, Henkel and L'Oreal. </span></span></div>
<div abp="547" style="text-align: justify;">
</div>
<div abp="553">
</div>
<div abp="554" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="555" style="font-family: Calibri;"><b abp="556"><span abp="557" lang="EN-GB">By concentrating on selected products in a few markets</span></b><span abp="558" lang="EN-GB"> - Nigeria, the UK, Indonesia and Australia - <b abp="559">PZC</b> can compete
on an equal footing with these consumer product giants.<span abp="560" style="mso-spacerun: yes;"> </span><b abp="561">PZC</b> claims it is the <i abp="562">CAN DO</i>
company and it finishes its vision statement with <i abp="563">We do well, we do good and
we have fun!</i> The founding family controls 35% of the company's shares. </span></span></div>
<div abp="564">
</div>
<div abp="565" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="566" style="font-family: Calibri;"><b abp="567"><span abp="568" lang="EN-GB">This year Manchester-based PZC celebrates 40 years of uninterrupted
increases in its dividends</span></b><span abp="569" lang="EN-GB">. And the company has a
good trading record. Consider:</span></span></div>
<div abp="570">
</div>
<div abp="571" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l4 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="572" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="573" style="mso-list: Ignore;"><span abp="574" style="font-family: Calibri;">1.</span><span abp="575" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="576" dir="LTR"></span><span abp="577" style="font-family: Calibri;"><b abp="578"><span abp="579" lang="EN-GB">Earnings
per share</span></b><span abp="580" lang="EN-GB"> (EPS) increased smoothly throughout the
financial crisis. From 2006-8 to 2012-14 EPS has increased by an average of 6%
per annum cumulatively. <b abp="581">Net margins</b> are a healthy 11%.</span></span></div>
<div abp="582">
</div>
<div abp="583" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l4 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="584" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="585" style="mso-list: Ignore;"><span abp="586" style="font-family: Calibri;">2.</span><span abp="587" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="588" dir="LTR"></span><span abp="589" style="font-family: Calibri;"><b abp="590"><span abp="591" lang="EN-GB">Return
on equity averages 12%.</span></b><span abp="592" lang="EN-GB"> While this is hardly
spectacular, it has been achieved without any substantial gearing. In most
years, the company has held net cash. In its interim accounts of November 2013,
net debt was 18% of equity, inflated by the purchase of an Australian baby food
company for cash. The company pays just 2% for its sterling denominated loans.</span></span></div>
<div abp="593">
</div>
<div abp="594" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l4 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="595" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="596" style="mso-list: Ignore;"><span abp="597" style="font-family: Calibri;">3.</span><span abp="598" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="599" dir="LTR"></span><span abp="600" style="font-family: Calibri;"><b abp="601"><span abp="602" lang="EN-GB">Net
asset value</span></b><span abp="603" lang="EN-GB"> has increased by 7% per annum from 2006
to date.</span></span></div>
<div abp="604">
</div>
<div abp="605" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l4 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="606" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="607" style="mso-list: Ignore;"><span abp="608" style="font-family: Calibri;">4.</span><span abp="609" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="610" dir="LTR"></span><span abp="611" lang="EN-GB"><span abp="612" style="font-family: Calibri;">In the
past five years, <b abp="613">net operating cash flow</b> has covered the dividend by 2.6
times.<span abp="614" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="615">
</div>
<div abp="616" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="617" style="font-family: Calibri;"><b abp="618"><span abp="619" lang="EN-GB">PZC's share price (in blue) has matched Reckitt Benckiser's</span></b><span abp="620" lang="EN-GB"> (in red) in the last 10 years and it has been a far superior
investment to <b abp="621">Unilever</b> (in yellow), which suffered from listless
management in the mid-2000s.</span></span></div>
<div abp="622">
</div>
<div abp="623" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="624" style="font-family: Calibri;"><span abp="625" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="626" alt="PZ Cussons share price Vs RB and UNLV.png" id="Picture_x0020_1" o:spid="_x0000_i1025" style="height: 183pt; mso-wrap-style: square; visibility: visible; width: 420.75pt;" type="#_x0000_t75">
<v:imagedata abp="627" o:title="PZ Cussons share price Vs RB and UNLV" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></v:shape></span><span abp="628" style="mso-spacerun: yes;"> </span></span><br />
<div abp="971" class="separator" style="clear: both; text-align: center;">
<span abp="624" style="font-family: Calibri;"><a abp="972" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOKtIcbIoojh-DxSrYWqo35HWX2MQBmMlsTuiqwhDL64THLWBSlyPbxclFIqQ0MUMr9yop17O7184DKsHKpqEM8iw6T3r87_UdNzvjbSFKznA_VoujSc10rhc5Tl9nRQlAIa0z1Kprm9I/s1600/PZ+Cussons+share+price+Vs+RB+and+UNLV.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="973" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOKtIcbIoojh-DxSrYWqo35HWX2MQBmMlsTuiqwhDL64THLWBSlyPbxclFIqQ0MUMr9yop17O7184DKsHKpqEM8iw6T3r87_UdNzvjbSFKznA_VoujSc10rhc5Tl9nRQlAIa0z1Kprm9I/s1600/PZ+Cussons+share+price+Vs+RB+and+UNLV.png" height="173" width="400" /></a></span></div>
<br />
<div abp="629">
</div>
<div abp="630" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="631" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="632" style="font-family: Calibri;">Graph courtesy Google, click to
enlarge<o:p abp="633"></o:p></span></span></div>
<div abp="634">
</div>
<div abp="635" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="636"><u abp="637"><span abp="638" lang="EN-GB"><span abp="639" style="font-family: Calibri;"><span style="color: #741b47;">Markets<o:p abp="640"></o:p></span></span></span></u></b></div>
<div abp="641">
</div>
<div abp="642" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="643" style="font-family: Calibri;"><b abp="644"><span abp="645" lang="EN-GB">PZC's largest single market is Nigeria</span></b><span abp="646" lang="EN-GB">,
accounting for 36% of its sales and one-third of its profit. Here the company
has market-leading personal care brands and it is the largest distributor of
white goods. Sales have barely increased in the past 5 years, with the
difficult security situation in the North of the country cited as a reason. This
has not stopped <b abp="647">PZC </b>investing further in Nigeria via a joint venture in
palm oil plantations and a refinery with <b abp="648">Wilmar International</b>. Based in
Singapore, <b abp="649">Wilmar</b>, with revenues of US$44 billion, claims to be the
global leader in the processing and merchandising of palm oil. The palm oil
refinery has begun to contribute to <b abp="650">PZC</b>'s results in fiscal 2014 (the
year end is May) and at the interim Nigerian sales were up by 6% and profits up
by 13%. <b abp="651">PZC </b>has much smaller sales to Ghana and Kenya. </span></span></div>
<div abp="652">
</div>
<div abp="653" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="654" style="font-family: Calibri;"><b abp="655"><span abp="656" lang="EN-GB">PZC derives 38% of its sales and 42% of its profits from Europe</span></b><span abp="657" lang="EN-GB">. Sales have increased by 20% and profits by 30% since 2009. Well over
half of European sales are in the UK, where <i abp="658">Imperial Leather</i> is <b abp="659">PZC's
</b>main brand. <b abp="660">PZC</b> also sells the leading UK antibacterial hand wash, <i abp="661">Carex</i>,
and beauty products under the <i abp="662">St Tropez</i> label and others. The company
has successfully launched a range of products for mother and baby, called <i abp="663">Cussons
Mum & Me</i>. The remaining European sales are in Poland, Greece and Germany.</span></span></div>
<div abp="664">
</div>
<div abp="665" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="666" style="font-family: Calibri;"><b abp="667"><span abp="668" lang="EN-GB">The Asian business</span></b><span abp="669" lang="EN-GB">, with revenues up by
30% since 2009 and profits up by 80%, is the fastest growing region for <b abp="670">PZC</b>.
It now accounts for 15% of sales and profits. <b abp="671">PZC'</b>s main markets are
Indonesia and Australia (an honorary Asian). <b abp="672">PZC </b>concentrates on beauty
products, including its <i abp="673">Imperial Leather</i> brand, in Indonesia. After
reorganising its Australian dishwashing, detergent and soaps business, the
company acquired <b abp="674">Rafferty Garden</b>, which manufactures baby foods, for 42
million pounds in July 2013. <b abp="675">Rafferty</b> contributed just under 1 million
pounds to profits in the first few months of fiscal 2014. <b abp="676">PZC</b> plans to
take the brand outside Australia.</span></span></div>
<div abp="677">
</div>
<div abp="678" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="679" style="font-family: Calibri;"><b abp="680"><span abp="681" lang="EN-GB">PZC Nigeria has refined a distribution system</span></b><span abp="682" lang="EN-GB"> for a large, poor, dispersed population that is served by poor infrastructure.
This experience has evidently been used to set up its distribution in
Indonesia, which shares, in this respect, the same challenges as Nigeria.</span></span></div>
<div abp="683">
</div>
<div abp="684" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="685"><u abp="686"><span abp="687" lang="EN-GB"><span abp="688" style="font-family: Calibri;"><span style="color: #741b47;">Supply chain optimisation programme<o:p abp="689"></o:p></span></span></span></u></b></div>
<div abp="690">
</div>
<div abp="691" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="692" style="font-family: Calibri;"><b abp="693"><span abp="694" lang="EN-GB">In March 2012</span></b><span abp="695" lang="EN-GB">, the company announced a
plan to reorganise its manufacturing facilities with two aims:</span></span></div>
<div abp="696">
</div>
<div abp="697" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l5 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="698" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="699" style="mso-list: Ignore;">Ø<span abp="700" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="701" dir="LTR"></span><span abp="702" lang="EN-GB"><span abp="703" style="font-family: Calibri;">Reduce its reliance on high cost manufacturing
facilities in Australia and Ghana and, possibly, Poland and elsewhere.</span></span></div>
<div abp="704">
</div>
<div abp="705" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l5 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="706" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="707" style="mso-list: Ignore;">Ø<span abp="708" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="709" dir="LTR"></span><span abp="710" lang="EN-GB"><span abp="711" style="font-family: Calibri;">Reduce overheads associated with manufacturing
and move to a variable cost procurement model.</span></span></div>
<div abp="712">
</div>
<div abp="713" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="714" style="font-family: Calibri;"><b abp="715"><span abp="716" lang="EN-GB">The initial cost</span></b><span abp="717" lang="EN-GB"> was estimated at 39
million pounds, half in write downs of plant and machinery and half in cash
disbursements. The payback on the cash element was estimated at less than three
years. In its April 2014 trading update, the company reported that </span><span abp="718" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">"the supply chain
optimisation programme was completed on budget early in this financial year,
and the realisation of the benefits remains in line with previous
expectations." <o:p abp="719"></o:p></span></span></div>
<div abp="720">
</div>
<div abp="721" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="722" style="font-family: Calibri;"><b abp="723"><span abp="724" lang="EN-GB">The final cost</span></b><span abp="725" lang="EN-GB"> for the three years
2012-2014 will have been 56.4 million pounds. 2014 results will include the
final charge of 20 million pounds, which the company says will be offset by the
profit on the sale of its Polish homecare business. </span></span></div>
<div abp="726">
</div>
<div abp="727" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="728"><u abp="729"><span abp="730" lang="EN-GB"><span abp="731" style="font-family: Calibri;"><span style="color: #741b47;">Outlook<o:p abp="732"></o:p></span></span></span></u></b></div>
<div abp="733">
</div>
<div abp="734" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="735" style="font-family: Calibri;"><b abp="736"><span abp="737" lang="EN-GB">In the short term</span></b><span abp="738" lang="EN-GB">, the strong pound is
an obstacle for a company that has 78% of its business outside the UK. However <b abp="739">PZC</b>
has confirmed that it is trading in line with expectations, and expectations
are for 18p 2014 earnings per share and a dividend payout of 8p. At the current
share price of 355p, that leaves the share on a prospective PE of 20 and
yielding 2.2%.</span></span></div>
<div abp="740">
</div>
<div abp="741" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="742" style="font-family: Calibri;"><b abp="743"><span abp="744" lang="EN-GB">Longer term</span></b><span abp="745" lang="EN-GB"> the company is moderately
optimistic (14 April 2014 trading update):</span></span></div>
<div abp="746">
</div>
<div abp="747" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="748" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="749" style="font-family: Calibri;">"Looking ahead, the
Group is focussed on a dynamic and fast brand renovation and innovation
programme, an ongoing cost reduction programme and successful delivery of new
areas of growth such as Rafferty's Garden and the Wilmar joint venture. These
initiatives will help counter the ongoing macro challenges and the reduction in
profits from Poland as a result of the homecare sale."<o:p abp="750"></o:p></span></span></div>
<div abp="751">
</div>
<div abp="752" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="753" style="font-family: Calibri;"><b abp="754"><span abp="755" lang="EN-GB">My valuation model values PZC's shares at around 310p</span></b><span abp="756" lang="EN-GB">.* This assumes that PZC meets its earnings forecast for the year
ending May 2014 and that the company continues its steady rate of growth
supported by cash generation. Given that the strong pound is likely to be a
passing phenomenon and that the two new businesses should be contributing
significantly to earnings, these are fairly realistic assumptions. </span><span abp="757" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">*Assumptions: EPS growth
6% p.a., ROE 12%, equity per share growth 7%, 50% dividend payout, average PE
ratio of 23, all discounted at 8.3% for the years 2014-18.<o:p abp="758"></o:p></span></span></div>
<div abp="759">
</div>
<div abp="760" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="761" style="font-family: Calibri;"><b abp="762"><span abp="763" lang="EN-GB"><span style="color: #741b47;">The seasoned investor will note</span></span></b><span abp="764" lang="EN-GB">:</span></span></div>
<div abp="765">
</div>
<div abp="766" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="767" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="768" style="mso-list: Ignore;">·<span abp="769" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="770" dir="LTR"></span><span abp="771" style="font-family: Calibri;"><b abp="772"><span abp="773" lang="EN-GB">The
supply chain optimisation programme</span></b><span abp="774" lang="EN-GB"> was designed to
reduce product cost. But competitors will also be reducing costs. Consequently,
such investments often lead to fewer benefits than originally calculated. They
are necessary to stay in business.</span></span></div>
<div abp="775">
</div>
<div abp="776" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="777" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="778" style="mso-list: Ignore;">·<span abp="779" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="780" dir="LTR"></span><span abp="781" style="font-family: Calibri;"><b abp="782"><span abp="783" lang="EN-GB">The
palm oil joint venture was agreed</span></b><span abp="784" lang="EN-GB"> in 2011 when the
price of palm oil had reached a peak. The price of palm oil has fallen by 32%
in US$ since then, which must have reduced the project's rate of return.</span></span></div>
<div abp="785">
</div>
<div abp="786" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="787" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="788" style="mso-list: Ignore;">·<span abp="789" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="790" dir="LTR"></span><span abp="791" style="font-family: Calibri;"><b abp="792"><span abp="793" lang="EN-GB">Nigeria
is facing a well-publicised insurgency</span></b><span abp="794" lang="EN-GB"> in the North
East, which could destabilise the country. However, <b abp="795">PZC </b>has long
experience of trading in West Africa.</span></span></div>
<div abp="796">
</div>
<div abp="797" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="798" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="799" style="mso-list: Ignore;">·<span abp="800" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="801" dir="LTR"></span><span abp="802" style="font-family: Calibri;"><b abp="803"><span abp="804" lang="EN-GB">The
share price reached a one-year high of 439p</span></b><span abp="805" lang="EN-GB"> in
September 2013 before falling to a 320p low in March 2014. Three directors sold
shares worth 0.6 million pounds in August 2013 at 390p a share. There have been
no significant director share purchases.</span></span></div>
<div abp="806">
</div>
<div abp="807" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="808" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="809" style="mso-list: Ignore;">·<span abp="810" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="811" dir="LTR"></span><span abp="812" style="font-family: Calibri;"><b abp="813"><span abp="814" lang="EN-GB">PZC
carries on its books a 28.5 million pound receivable from Wilmar</span></b><span abp="815" lang="EN-GB">. However, the company acknowledges that this is not collectible and
is, in practice, an investment in the joint venture. This odd state of affairs
is not explained and should be regularised. If it is written off, then this is
a large charge for a company that recorded a pre-tax profit of 95 million
pounds in 2013.</span></span></div>
<div abp="816">
</div>
<div abp="817" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo5; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="818" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="819" style="mso-list: Ignore;">·<span abp="820" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="821" dir="LTR"></span><span abp="822" lang="EN-GB"><span abp="823" style="font-family: Calibri;">Although <b abp="824">the
defined benefit pension scheme</b> was closed to new accruals in 2008, it might
require further funding by the company.</span></span></div>
<div abp="825">
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-14093848600621955742014-04-25T20:21:00.000+01:002014-04-25T20:21:19.419+01:00<div abp="276">
</div>
<h3 abp="277" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="279" lang="EN-GB"><span style="color: #20124d;">Revisiting
Jacko the Stock Exchange Gorilla and the question of benchmarks<o:p abp="282"></o:p></span></span></h3>
<div abp="283">
</div>
<h4 abp="284" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="286" lang="EN-GB"><span style="color: #660000;">And
Stanley Gibbons Group PLC<o:p abp="289"></o:p></span></span></h4>
<div abp="290">
</div>
<div abp="1083" class="separator" style="clear: both; text-align: center;">
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<div abp="293" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
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<div abp="315">
</div>
<div abp="316" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="317" style="font-family: Calibri;"><b abp="318"><span abp="319" lang="EN-GB">My first article at this blog discussed the extraordinary stock
picking exploits of Jacko</span></b><span abp="320" lang="EN-GB"> the gorilla. <b abp="321">Jacko</b>
lives in Amsterdam's zoo. In January 2000 he was presented with seventy-five
bananas, each of which represented one of the largest 75 stocks traded on the
Amsterdam Stock Exchange. He chose ten and this was his starting portfolio. Every
month since then <b abp="322">Jacko</b> picks out one of ten bananas corresponding to his
portfolio and that stock is sold. Then he chooses one banana from another pile
of 65 bananas, corresponding to shares he does not hold, and that is his buy.</span></span></div>
<div abp="323">
</div>
<div abp="324" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="325" style="font-family: Calibri;"><b abp="326"><span abp="327" lang="EN-GB">Jacko's banana portfolio has beaten the AEX index of large Dutch
companies every year except for 2011</span></b><span abp="328" lang="EN-GB">. Cumulatively,
<b abp="329">Jacko'</b>s portfolio has increased in value by 108% compared to a loss of
41% of his benchmark, the AEX (both exclude dividend income). This represents
an average outperformance of 9.4% every year for 14 years. By comparison, star
fund manager Anthony Bolton's Fidelity Special Situations outperformed his
benchmark by 6% a year over a period of 28 years. </span></span></div>
<div abp="330">
</div>
<div abp="331" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="332" style="font-family: Calibri;"><b abp="333"><span abp="334" lang="EN-GB">In 2013, Jacko's portfolio beat the AEX by 22%.</span></b><span abp="335" lang="EN-GB"> <b abp="336">As Jacko's investments are reported daily</b>, neither <b abp="337">Jacko</b>
nor his human interface have had the opportunity of cheating. But <b abp="338">Jacko's</b>
portfolio exposes the limitations of index benchmarking, which are often
ignored.</span></span></div>
<div abp="339">
</div>
<div abp="340" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="341" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="342" style="mso-list: Ignore;">Ø<span abp="343" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="344" dir="LTR"></span><span abp="345" style="font-family: Calibri;"><b abp="346"><span abp="347" lang="EN-GB">Jacko's portfolio is chosen from the 75
largest stocks traded in Amsterdam compared to the 25 largest which makes up
the AEX index</span></b><span abp="348" lang="EN-GB">. The other stocks are quoted on the
AMX - mid-cap, representing the 26 to 50 largest stocks, and the AScX - small
cap shares, representing the 51 to 75 largest stocks traded in Amsterdam. <span abp="349" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="350">
</div>
<div abp="351" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="352" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="353" style="mso-list: Ignore;">Ø<span abp="354" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="355" dir="LTR"></span><span abp="356" style="font-family: Calibri;"><b abp="357"><span abp="358" lang="EN-GB">Even if these indices were included</span></b><span abp="359" lang="EN-GB">, they would misrepresent Jacko's choice of stocks, because the
indices themselves have changed radically over the 14 years that Jacko has been
trading.</span></span></div>
<div abp="360">
</div>
<div abp="361" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="362" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="363" style="mso-list: Ignore;"><span abp="364" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="365" dir="LTR"></span><span abp="366" style="font-family: Calibri;"><u abp="367"><span abp="368" lang="EN-GB">Number
of constituent companies in the index in both January 2000 and March 2014</span></u><span abp="369" lang="EN-GB">:</span></span></div>
<div abp="370">
</div>
<div abp="371" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="372" lang="EN-GB"><span abp="373" style="font-family: Calibri;"><span abp="374" style="mso-tab-count: 1;"> </span>Amsterdam large cap<span abp="375" style="mso-tab-count: 1;"> </span>AEX<span abp="376" style="mso-tab-count: 2;"> </span>13 of 25 constituents</span></span></div>
<div abp="377">
</div>
<div abp="378" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="379" lang="EN-GB"><span abp="380" style="font-family: Calibri;"><span abp="381" style="mso-tab-count: 1;"> </span>Amsterdam mid-cap<span abp="382" style="mso-tab-count: 1;"> </span>AMX<span abp="383" style="mso-tab-count: 2;"> </span><span abp="384" style="mso-spacerun: yes;"> </span>3 of 25 constituents</span></span></div>
<div abp="385">
</div>
<div abp="386" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="387" lang="EN-GB"><span abp="388" style="font-family: Calibri;"><span abp="389" style="mso-tab-count: 1;"> </span>Amsterdam small-cap<span abp="390" style="mso-tab-count: 1;"> </span>AScX<span abp="391" style="mso-tab-count: 2;"> </span><span abp="392" style="mso-spacerun: yes;"> </span>0 of 25 constituents</span></span></div>
<div abp="393">
</div>
<div abp="394" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="395" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="396" style="mso-list: Ignore;">Ø<span abp="397" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="398" dir="LTR"></span><span abp="399" style="font-family: Calibri;"><b abp="400"><span abp="401" lang="EN-GB">The indices are weighted annually</span></b><span abp="402" lang="EN-GB"> by free float market capitalization for each company. <b abp="403">Jacko</b>
gives equal weight to each stock (banana) in his portfolio.</span></span></div>
<div abp="405" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; text-align: justify;">
<span abp="406" lang="EN-GB"><o:p abp="407"><span abp="408" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="409">
</div>
<div abp="409">
Jacko can beat his benchmark because his portfolio has little to do with the index used as his benchmark.</div>
<div abp="409">
</div>
<div abp="410" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="411" style="font-family: Calibri;"><b abp="412"><span abp="413" lang="EN-GB"></span></b></span> </div>
<div abp="410" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="411" style="font-family: Calibri;"><b abp="412"><span abp="413" lang="EN-GB">Our
own indices are also in flux.</span></b><span abp="414" lang="EN-GB"> The FTSE 100 has
gained 160 constituents and lost 160 over the last 14 years and it is rebased
every quarter for market capitalization.<b abp="415"> </b></span></span></div>
<div abp="418" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="419"><span abp="420" lang="EN-GB"><o:p abp="421"><span abp="422" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="423">
</div>
<div abp="424" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="425" style="font-family: Calibri;"><b abp="426"><span abp="427" lang="EN-GB">Individual
investors face trading expenses and income and capital gains tax</span></b><span abp="428" lang="EN-GB"> that are excluded from the indices. <span abp="429" style="mso-spacerun: yes;"> </span>Benchmarking a portfolio is good practice:
without a benchmark we are like a rudderless dinghy bobbing along at sea, with
no idea and no control over where we will eventually land. Fund managers require
a generally accepted yardstick in the public domain, usually an index, but that
doesn't mean this is the right yardstick for an individual. </span></span></div>
<div abp="431" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="432" lang="EN-GB"><o:p abp="433"><span abp="434" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="435">
</div>
<div abp="436" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="437" style="font-family: Calibri;"><b abp="438"><span abp="439" lang="EN-GB">Financially
speaking, individual investors have messy lives</span></b><span abp="440" lang="EN-GB">. We
spend large sums on weddings, houses, divorces, our children's education and
our own businesses. We save as best we can, if we're fortunate we receive
bonuses and inheritances, and by downsizing our homes we release capital to
invest. We invest when we can and disinvest when we have to; at bottom our financial
objectives have nothing to do with the vagaries of any market index. </span></span></div>
<div abp="442" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="443" lang="EN-GB"><o:p abp="444"><span abp="445" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="446">
</div>
<div abp="447" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="448" style="font-family: Calibri;"><b abp="449"><span abp="450" lang="EN-GB">Benchmarking
should reflect our goals.</span></b><span abp="451" lang="EN-GB"> For a young professional,
who wants to buy a first home, the most appropriate benchmark might be to
accumulate X thousand pounds within Y years as a deposit.<span abp="452" style="mso-spacerun: yes;"> </span>This he or she must achieve through savings
and capital gains. For the self-employed homeowner, who wants to secure his
retirement, the benchmark might be a Self Invested Pension Plan that, with
current annuity rates, will provide an income of at least X pounds a year from
the age of 65. And for someone nearing retirement, who wants an income
to keep pace with inflation, the most relevant benchmark will be based on the
income generated by his or her investments and not the asset value of his portfolio. Our
benchmarks change as our lives and circumstances change. </span><span abp="453" lang="EN-GB" style="mso-ascii-font-family: Calibri; mso-hansi-font-family: Calibri;">And
by being specifically related to our financial objectives our personal
benchmarks point us to the financial assets that best suit our needs.<o:p abp="454"></o:p></span></span></div>
<div abp="455">
</div>
<div abp="456" align="center" class="MsoNormal" style="line-height: 150%; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="457" lang="EN-GB" style="mso-ascii-font-family: Calibri; mso-hansi-font-family: Calibri;"><span abp="458" style="font-family: Calibri;">-----------------------------------------------------------------------------</span></span></div>
<div abp="459">
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<div abp="460" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="461" lang="EN-GB"><o:p abp="462"><span abp="463" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="464">
</div>
<h3 abp="465" align="center" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; text-align: center;">
<span abp="467" lang="EN-GB"><span style="color: #660000;">Stanley Gibbons Group PLC (AIM stock)<o:p abp="1106"></o:p></span></span></h3>
<div abp="470">
</div>
<div abp="471" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<span abp="472" lang="EN-GB"><o:p abp="473"><span abp="474" style="font-family: Calibri;"> </span></o:p></span><div abp="1107" class="separator" style="clear: both; text-align: center;">
<span abp="474" style="font-family: Calibri;"><a abp="1108" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLdWhn8Vf1qheyF4cbN_ylUglN2EHa2w3Qd7pOA9Kkc2px3X6d8BG-vuGsMmQjYUyO6HLs16R1MMYbeu1Q97mV8YgKFEi4J-Eu-llQVNox9X-5U-oLX9CTDfE_UsJMfYpdx1xIXBeEJZk/s1600/British_Guiana_13+stamp+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1109" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLdWhn8Vf1qheyF4cbN_ylUglN2EHa2w3Qd7pOA9Kkc2px3X6d8BG-vuGsMmQjYUyO6HLs16R1MMYbeu1Q97mV8YgKFEi4J-Eu-llQVNox9X-5U-oLX9CTDfE_UsJMfYpdx1xIXBeEJZk/s1600/British_Guiana_13+stamp+wiki.jpg" /></a></span></div>
<br />
<div abp="475">
</div>
<div abp="482" align="center" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; text-align: center;">
<span abp="483" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="484" style="font-family: Calibri;">British Guiana 1 cent magenta,
1856, courtesy Wikipedia<o:p abp="485"></o:p></span></span></div>
<div abp="486">
</div>
<div abp="487" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; text-align: justify;">
<span abp="488" lang="EN-GB"></span> </div>
<div abp="492" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="493" style="font-family: Calibri;"><b abp="494"><span abp="495" lang="EN-GB">Stanley Gibbons (SGI)</span></b><span abp="496" lang="EN-GB">, well known for its philatelic business, has a growing and profitable
business in other collectibles as well - First Day covers, rare coins, medals
and memorabilia<b abp="497">. </b>While sales from the London, Jersey, Singapore and Hong
Kong<b abp="498"> </b>offices, including email campaigns and auctions, contribute the
bulk of revenue and earnings, the company is working hard to develop its online
business in both the UK and the USA.<b abp="499"> </b>This is partly in response to the
growth of <b abp="500">eBay</b>, which enables collectors to buy and sell stamps and
coins easily and at a low cost. </span></span></div>
<div abp="502" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="503" lang="EN-GB"><o:p abp="504"><span abp="505" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="506">
</div>
<div abp="507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="508" style="font-family: Calibri;"><b abp="509"><span abp="510" lang="EN-GB">At the top end of the
market</span></b><span abp="511" lang="EN-GB">, vendors choose large auctioneers. Sotheby's
are auctioning the only example of an 1856 British Guiana 1 cent magenta
(pictured above) in June, which is expected to sell for $20 to $30 million. This
would be the highest price ever paid for a single stamp.</span></span></div>
<div abp="513" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="514" lang="EN-GB"><o:p abp="515"><span abp="516" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="517">
</div>
<div abp="518" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="519" style="font-family: Calibri;"><b abp="520"><span abp="521" lang="EN-GB">SGI shares trade on
AIM</span></b><span abp="522" lang="EN-GB"> and are eligible for 100% relief from
inheritance tax. The company has a market capitalisation of 157 million pounds
and nearly 100% of the shares are free float. Institutions own 40% of the
company led by <b abp="523">BlackRock</b> with 9.2%.</span></span></div>
<div abp="525" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="526" lang="EN-GB"><o:p abp="527"><span abp="528" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="529">
</div>
<div abp="530" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="531" style="font-family: Calibri;"><b abp="532"><span abp="533" lang="EN-GB">Financial results for
SGI from 2003 to 2012 were strong</span></b><span abp="534" lang="EN-GB">:</span></span></div>
<div abp="536" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="537" lang="EN-GB"><o:p abp="538"><span abp="539" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="540">
</div>
<div abp="541" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="542" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="543" style="mso-list: Ignore;">Ø<span abp="544" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="545" dir="LTR"></span><span abp="546" style="font-family: Calibri;"><b abp="547"><span abp="548" lang="EN-GB">Earnings
per share</span></b><span abp="549" lang="EN-GB"> grew at a compound 16% p.a. and the <b abp="550">dividend</b>
increased in proportion.</span></span></div>
<div abp="551">
</div>
<div abp="552" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="553" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="554" style="mso-list: Ignore;">Ø<span abp="555" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="556" dir="LTR"></span><span abp="557" style="font-family: Calibri;"><b abp="558"><span abp="559" lang="EN-GB">Equity per share</span></b><span abp="560" lang="EN-GB">
grew at a compound 15% p.a. over the same period.</span></span></div>
<div abp="561">
</div>
<div abp="562" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="563" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="564" style="mso-list: Ignore;">Ø<span abp="565" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="566" dir="LTR"></span><span abp="567" lang="EN-GB"><span abp="568" style="font-family: Calibri;"><strong>The historical</strong> <b abp="569">return on equity</b> is a
healthy 17%. However, the return on retained earnings since 2003 has declined
to 13%. In 2013 ROE fell to 4%.</span></span></div>
<div abp="570">
</div>
<div abp="571" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="572" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="573" style="mso-list: Ignore;">Ø<span abp="574" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="575" dir="LTR"></span><span abp="576" style="font-family: Calibri;"><b abp="577"><span abp="578" lang="EN-GB">Net margins</span></b><span abp="579" lang="EN-GB"> were
15%.</span></span></div>
<div abp="580">
</div>
<div abp="581" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="582" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="583" style="mso-list: Ignore;">Ø<span abp="584" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="585" dir="LTR"></span><span abp="586" style="font-family: Calibri;"><b abp="587"><span abp="588" lang="EN-GB">Cash flow</span></b><span abp="589" lang="EN-GB"> has
been consistently positive with net operating cash flow of 16 million pounds
covering the dividend more than twice these last five years.</span></span></div>
<div abp="590">
</div>
<div abp="591" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="592" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="593" style="mso-list: Ignore;">Ø<span abp="594" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="595" dir="LTR"></span><span abp="596" style="font-family: Calibri;"><b abp="597"><span abp="598" lang="EN-GB">At
December 2013, SGI had no debt</span></b><span abp="599" lang="EN-GB"> and net cash of
17million pounds, nearly 10% of its market value.</span></span></div>
<div abp="601" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="602" lang="EN-GB"><o:p abp="603"><span abp="604" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="605">
</div>
<div abp="606" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="607" style="font-family: Calibri;"><b abp="608"><span abp="609" lang="EN-GB">The company is riding
a wave of interest</span></b><span abp="610" lang="EN-GB"> in 'alternative' assets, driven
in part by the very low cost of money. The price of gold, for instance, has
increased by 360% since 2003. And rare British stamp prices have moved ahead of
gold:</span></span></div>
<div abp="611">
</div>
<div abp="612" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="613" lang="EN-GB"><o:p abp="614"><span abp="615" style="font-family: Calibri;"> </span></o:p></span><div abp="1125" class="separator" style="clear: both; text-align: center;">
<span abp="615" style="font-family: Calibri;"><a abp="1126" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFGdz3notfDDmmRFIaQzMzWKrBlxF-ma4sgFwWRrJCKvNwHXbXutpyoZwL42JI15x6xZMw_GEGHGvSq8j0H4M9krtL6wlP2VKEhuQxC2K2oWByNqA40rscEn9YsUuiIiJTuOPfuHlyH9s/s1600/GB30+Stanley+Gibbons+Rare+Stamp+index.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1127" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFGdz3notfDDmmRFIaQzMzWKrBlxF-ma4sgFwWRrJCKvNwHXbXutpyoZwL42JI15x6xZMw_GEGHGvSq8j0H4M9krtL6wlP2VKEhuQxC2K2oWByNqA40rscEn9YsUuiIiJTuOPfuHlyH9s/s1600/GB30+Stanley+Gibbons+Rare+Stamp+index.jpg" height="371" width="400" /></a></span></div>
<br />
<div abp="616" style="text-align: center;">
<span abp="624" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="625" style="font-family: Calibri;">Graph
courtesy Stanley Gibbons, click to enlarge<o:p abp="626"></o:p></span></span></div>
<div abp="627">
</div>
<div abp="628" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="629" lang="EN-GB"><o:p abp="630"><span abp="631" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="632">
</div>
<div abp="633" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="634" lang="EN-GB"><span abp="635" style="font-family: Calibri;"><span abp="636" style="mso-spacerun: yes;"> </span><b abp="637">SGI's share price (in blue) easily
outperformed the FTSE All Share (in red) since 2009</b>:</span></span></div>
<div abp="638">
</div>
<div abp="639" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="640" lang="EN-GB"><o:p abp="641"><span abp="642" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="643">
</div>
<div abp="1200" class="separator" style="clear: both; text-align: center;">
<a abp="1201" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju78I0CzW_YVbBxy7vkk74bNOFfzR1-taNxmCuAwnNORfxb9nYAq0tH9MwqO2ixqrwEGzYtyCZownFL4_6_n8TDIbLfzboGSsbMLs8zZT0CyOciCtmRMSOJ1L173DdrH1ov53Lpx8Kvwo/s1600/Stanley+Gibbons+Vs+FTSE+All+google.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1202" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju78I0CzW_YVbBxy7vkk74bNOFfzR1-taNxmCuAwnNORfxb9nYAq0tH9MwqO2ixqrwEGzYtyCZownFL4_6_n8TDIbLfzboGSsbMLs8zZT0CyOciCtmRMSOJ1L173DdrH1ov53Lpx8Kvwo/s1600/Stanley+Gibbons+Vs+FTSE+All+google.png" height="160" width="400" /></a></div>
<div abp="644" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="645" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="646" alt="Stanley Gibbons Vs FTSE All google.png" id="Picture_x0020_0" o:spid="_x0000_i1025" style="height: 170.25pt; mso-wrap-style: square; visibility: visible; width: 423pt;" type="#_x0000_t75"><span abp="647" style="font-family: Calibri;">
<v:imagedata abp="648" o:title="Stanley Gibbons Vs FTSE All google" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></span></v:shape></span></div>
<div abp="649">
</div>
<div abp="650" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="651" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="652" style="font-family: Calibri;">SGI
in blue, FTSE All Share in red, courtesy Google, click to enlarge<o:p abp="653"></o:p></span></span></div>
<div abp="654">
</div>
<div abp="655" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="656" lang="EN-GB"><o:p abp="657"><span abp="658" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="659">
</div>
<div abp="660" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="661" style="font-family: Calibri;"><b abp="662"><span abp="663" lang="EN-GB">The quite sudden fall
in SGI's share price</span></b><span abp="664" lang="EN-GB"> since March might seem like a
buying opportunity, and a buy tip from the <i abp="665">Investors Chronicle</i> (published
yesterday) has caused the shares to rebound by 10% in just one day.</span></span></div>
<div abp="667" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="668" lang="EN-GB"><o:p abp="669"><span abp="670" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="671">
</div>
<div abp="672" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="673"><span abp="674" lang="EN-GB"><span abp="675" style="font-family: Calibri;">SGI's business is
changing:</span></span></b></div>
<div abp="678" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="679"><span abp="680" lang="EN-GB"><o:p abp="681"><span abp="682" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="683">
</div>
<div abp="684" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="685"><span abp="686" lang="EN-GB"><span abp="687" style="font-family: Calibri;">1. Noble Investments:</span></span></b></div>
<div abp="690" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="691"><span abp="692" lang="EN-GB"><o:p abp="693"><span abp="694" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="695">
</div>
<div abp="696" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="697" style="font-family: Calibri;"><b abp="698"><span abp="699" lang="EN-GB">In November 2013 SGI
acquired Noble Investments for 45.3 million pounds</span></b><span abp="700" lang="EN-GB">.
<b abp="701">Noble</b> specialises in rare coins and owns two small auctioneers
specialising in rare books and manuscripts and jewellery, watches and fine
wines. <b abp="702">SGI</b>'s purchase valued <b abp="703">Noble</b> at an historical PE ratio of
15. The company placed shares to the value of 39.8 million pounds to cover the
31.8 million pounds that was the cash consideration for <b abp="704">Noble, </b>leaving<b abp="705">
</b>8 million pounds for use elsewhere in the business. As a result, <b abp="706">SGI
shareholders saw their holdings diluted by 37%.</b></span></span></div>
<div abp="709" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="710"><span abp="711" lang="EN-GB"><o:p abp="712"><span abp="713" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="714">
</div>
<div abp="715" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="716" style="font-family: Calibri;"><b abp="717"><span abp="718" lang="EN-GB">In its 2013 Annual
Report</span></b><span abp="719" lang="EN-GB">, the company explains the rationale behind
the Noble acquisition:</span></span><span abp="722" lang="EN-GB"><o:p abp="723"><span abp="724" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="725">
</div>
<div abp="726" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="727" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="728" style="font-family: Calibri;">"The<span abp="729" style="mso-spacerun: yes;"> </span>acquisition
of<span abp="730" style="mso-spacerun: yes;"> </span>Noble<span abp="731" style="mso-spacerun: yes;">
</span>in<span abp="732" style="mso-spacerun: yes;"> </span>November<span abp="733" style="mso-spacerun: yes;"> </span>last<span abp="734" style="mso-spacerun: yes;">
</span>year<span abp="735" style="mso-spacerun: yes;"> </span>immediately<span abp="736" style="mso-spacerun: yes;"> </span>transforms<span abp="737" style="mso-spacerun: yes;">
</span>The<span abp="738" style="mso-spacerun: yes;"> </span>Stanley<span abp="739" style="mso-spacerun: yes;"> </span>Gibbons<span abp="740" style="mso-spacerun: yes;">
</span>Group<span abp="741" style="mso-spacerun: yes;"> </span>from<span abp="742" style="mso-spacerun: yes;"> </span>being<span abp="743" style="mso-spacerun: yes;">
</span>the predominant name<span abp="744" style="mso-spacerun: yes;"> </span>in<span abp="745" style="mso-spacerun: yes;"> </span>the<span abp="746" style="mso-spacerun: yes;">
</span>stamp<span abp="747" style="mso-spacerun: yes;"> </span>market<span abp="748" style="mso-spacerun: yes;"> </span>to<span abp="749" style="mso-spacerun: yes;">
</span>being<span abp="750" style="mso-spacerun: yes;"> </span>a<span abp="751" style="mso-spacerun: yes;"> </span>major<span abp="752" style="mso-spacerun: yes;">
</span>force<span abp="753" style="mso-spacerun: yes;"> </span>in<span abp="754" style="mso-spacerun: yes;"> </span>both<span abp="755" style="mso-spacerun: yes;">
</span>dealing<span abp="756" style="mso-spacerun: yes;"> </span>and<span abp="757" style="mso-spacerun: yes;"> </span>auctions<span abp="758" style="mso-spacerun: yes;">
</span>in<span abp="759" style="mso-spacerun: yes;"> </span>the<span abp="760" style="mso-spacerun: yes;"> </span>wider<span abp="761" style="mso-spacerun: yes;">
</span>collectibles<span abp="762" style="mso-spacerun: yes;"> </span>market.<span abp="763" style="mso-spacerun: yes;"> </span>The<span abp="764" style="mso-spacerun: yes;">
</span>strategic importance of this acquisition is most relevant in respect of
our online strategy to create a global online marketplace for collectibles as
a<span abp="765" style="mso-spacerun: yes;"> </span>result<span abp="766" style="mso-spacerun: yes;">
</span>of<span abp="767" style="mso-spacerun: yes;"> </span>the<span abp="768" style="mso-spacerun: yes;"> </span>wider<span abp="769" style="mso-spacerun: yes;">
</span>range<span abp="770" style="mso-spacerun: yes;"> </span>of<span abp="771" style="mso-spacerun: yes;"> </span>collectibles<span abp="772" style="mso-spacerun: yes;">
</span>in<span abp="773" style="mso-spacerun: yes;"> </span>which<span abp="774" style="mso-spacerun: yes;"> </span>we<span abp="775" style="mso-spacerun: yes;">
</span>now<span abp="776" style="mso-spacerun: yes;"> </span>have<span abp="777" style="mso-spacerun: yes;"> </span>authority<span abp="778" style="mso-spacerun: yes;">
</span>and<span abp="779" style="mso-spacerun: yes;"> </span>expertise.<span abp="780" style="mso-spacerun: yes;"> </span>The<span abp="781" style="mso-spacerun: yes;">
</span>primary<span abp="782" style="mso-spacerun: yes;"> </span>objectives<span abp="783" style="mso-spacerun: yes;"> </span>of<span abp="784" style="mso-spacerun: yes;">
</span>our<span abp="785" style="mso-spacerun: yes;"> </span>online marketplace<span abp="786" style="mso-spacerun: yes;"> </span>will<span abp="787" style="mso-spacerun: yes;">
</span>be<span abp="788" style="mso-spacerun: yes;"> </span>to<span abp="789" style="mso-spacerun: yes;"> </span>make<span abp="790" style="mso-spacerun: yes;">
</span>selling<span abp="791" style="mso-spacerun: yes;"> </span>online<span abp="792" style="mso-spacerun: yes;"> </span>faster<span abp="793" style="mso-spacerun: yes;">
</span>and<span abp="794" style="mso-spacerun: yes;"> </span>easier<span abp="795" style="mso-spacerun: yes;"> </span>through<span abp="796" style="mso-spacerun: yes;">
</span>our<span abp="797" style="mso-spacerun: yes;"> </span>bespoke<span abp="798" style="mso-spacerun: yes;"> </span>collectibles<span abp="799" style="mso-spacerun: yes;">
</span>sellers’<span abp="800" style="mso-spacerun: yes;"> </span>tools<span abp="801" style="mso-spacerun: yes;"> </span>at<span abp="802" style="mso-spacerun: yes;">
</span>the<span abp="803" style="mso-spacerun: yes;"> </span>same<span abp="804" style="mso-spacerun: yes;"> </span>time<span abp="805" style="mso-spacerun: yes;">
</span>as providing buyers better protection against authenticity risks and
from miss-selling practices."<o:p abp="806"></o:p></span></span></div>
<div abp="807">
</div>
<div abp="808" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="809" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="810"><span abp="811" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="813" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="814" style="font-family: Calibri;"><b abp="815"><span abp="816" lang="EN-GB">In the last month of
2013,</span></b><span abp="817" lang="EN-GB"> <b abp="818">Noble'</b>s rare coin business helped to
triple <b abp="819">SGI</b>'s coin sales to increase trading profit by 0.7 million
pounds. This was the result of cross selling its coins to <b abp="820">SGI</b>'s customer
base. The company also anticipates cost savings of close to 1 million pounds
this year.</span></span></div>
<div abp="822" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="823" lang="EN-GB"><o:p abp="824"><span abp="825" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="826">
</div>
<div abp="827" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="828"><span abp="829" lang="EN-GB"><span abp="830" style="font-family: Calibri;">2. The internet<o:p abp="831"></o:p></span></span></b></div>
<div abp="832">
</div>
<div abp="833" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="839" style="font-family: Calibri;"><b abp="840"><span abp="841" lang="EN-GB">SGI</span></b><span abp="842" lang="EN-GB"> has been straining to develop an online market, both in the UK and
the USA, to compete with <b abp="843">eBay</b>. This has proved to be difficult and
costly. In 2013 the company reported a pre-tax loss of 1.4 million pounds on
internet sales, which is large when compared to <b abp="844">SGI</b>'s total pre-tax
profit of 3.5 million pounds in that year.</span></span></div>
<div abp="846" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="847" lang="EN-GB"><o:p abp="848"><span abp="849" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="850">
</div>
<div abp="851" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="852" style="font-family: Calibri;"><b abp="853"><span abp="854" lang="EN-GB">Internet sales</span></b><span abp="855" lang="EN-GB"> are a mere 8% of the total, and once SGI sorts out its technical
problems this should be a source of new business.</span></span></div>
<div abp="857" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="858" lang="EN-GB"><o:p abp="859"><span abp="860" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="861">
</div>
<div abp="862" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="863" style="font-family: Calibri;"><b abp="864"><span abp="865" lang="EN-GB">However, the costs
associated with the acquisition of Noble and developing the internet market</span></b><span abp="866" lang="EN-GB"> are the main reasons why <b abp="867">SGI</b>'s 2013 earnings per share
declined by a third on 2012. Traditional trading in philately and other
collectibles improved in 2013, with the Singapore and Jersey offices showing
strong growth. 65% of <b abp="868">SGI'</b>s customers are located in the UK, including
the Channel Islands.</span></span></div>
<div abp="869">
</div>
<div abp="870" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="871" lang="EN-GB"><o:p abp="872"><span abp="873" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="875" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="876" style="font-family: Calibri;"><b abp="877"><span abp="878" lang="EN-GB">At today's share
price of 342p, SGI</span></b><span abp="879" lang="EN-GB"> is on an historical PE ratio of
21 (adjusted for exceptional expenses) and a prospective PE ratio of 16. At the
present price, the shares yield 2.2%.</span></span></div>
<div abp="875" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="876" style="font-family: Calibri;"><span abp="879" lang="EN-GB"></span></span> </div>
<div abp="880">
</div>
<div abp="881" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="882" style="font-family: Calibri;"><b abp="883"><span abp="884" lang="EN-GB">My valuation model
values SGI at around 300p</span></b><span abp="885" lang="EN-GB">. This assumes that <b abp="886">SGI</b>
meets its forecast for next year's earnings and continues to trade at an
average PE of 17. Earnings growth after 2014 is assumed to be 5% p.a. through
to 2018. This has been discounted at 10.8% (Bond rate - SLXX 3.8%, 2% operating
risk, 5% margin of safety).</span></span></div>
<div abp="887">
<span abp="889" lang="EN-GB"><o:p abp="890"><span abp="891" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="892">
</div>
<div abp="893" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="894" style="font-family: Calibri;"><b abp="895"><span abp="896" lang="EN-GB">The cautious investor
will note</span></b><span abp="897" lang="EN-GB">:</span></span></div>
<div abp="898">
</div>
<div abp="899" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="900" lang="EN-GB"><o:p abp="901"><span abp="902" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="904" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="905" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="906" style="mso-list: Ignore;">·<span abp="907" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="908" dir="LTR"></span><span abp="909" style="font-family: Calibri;"><b abp="910"><span abp="911" lang="EN-GB">An
eventual return to dear money</span></b><span abp="912" lang="EN-GB"> might prick the
bubble in the price of collectibles.</span></span></div>
<div abp="913">
</div>
<div abp="914" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="915" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="916" style="mso-list: Ignore;">·<span abp="917" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="918" dir="LTR"></span><span abp="919" style="font-family: Calibri;"><b abp="920"><span abp="921" lang="EN-GB">Management
do not own a significant part of the company</span></b><span abp="922" lang="EN-GB">. The
large share placing in 2013 followed a smaller placing in 2012. The company
also buys new businesses with shares, the latest in January 2014, further
diluting existing shareholders. While the acquisitions might make commercial
sense, the exclusive use of <b abp="923">SGI</b> shares as a means of payment dilutes <b abp="924">SGI</b>'s
traditional earnings and existing shareholders. For a cash generating company,
with 17 million pounds net cash at year-end, the reliance on equity issues is
odd. </span></span></div>
<div abp="925">
</div>
<div abp="926" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="927" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="928" style="mso-list: Ignore;">·<span abp="929" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="930" dir="LTR"></span><span abp="931" style="font-family: Calibri;"><b abp="932"><span abp="933" lang="EN-GB">Return
on equity</span></b><span abp="934" lang="EN-GB"> has fallen from an average of 17% between
2003 and 2012 to 4% in 2013. This reflects the large increase in capital in
recent years and a decline in earnings.</span></span></div>
<div abp="935">
</div>
<div abp="936" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="937" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="938" style="mso-list: Ignore;">·<span abp="939" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="940" dir="LTR"></span><span abp="941" style="font-family: Calibri;"><b abp="942"><span abp="943" lang="EN-GB">Three
directors sold shares</span></b><span abp="944" lang="EN-GB"> worth 1 million pounds at
365p in January 2014. There were no director buys since the placing at 295p in
November 2013.</span></span></div>
<div abp="945">
</div>
<div abp="946" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="947" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="948" style="mso-list: Ignore;">·<span abp="949" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="950" dir="LTR"></span><span abp="951" style="font-family: Calibri;"><b abp="952"><span abp="953" lang="EN-GB">SGI</span></b><span abp="954" lang="EN-GB"> is spending large sums to get its online platform up and running.
There is no guarantee that <b abp="955">SGI</b> will compete successfully in this market
with established companies such as <b abp="956">eBay</b>.</span></span></div>
<div abp="957">
</div>
<div abp="958" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="959" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="960" style="mso-list: Ignore;">·<span abp="961" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="962" dir="LTR"></span><span abp="963" style="font-family: Calibri;"><b abp="964"><span abp="965" lang="EN-GB">The
deficit on the defined benefit pension scheme climbed to 3.3 million pounds</span></b><span abp="966" lang="EN-GB">. Although the scheme was closed to new entrants in 2002, it is
likely to require further financial support.</span></span></div>
<div abp="967">
</div>
<div abp="968" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="969" lang="EN-GB"><o:p abp="970"><span abp="971" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="972">
</div>
<div abp="973" class="MsoListParagraph" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; text-align: justify;">
<span abp="974" lang="EN-GB"><o:p abp="975"><span abp="976" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="977">
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com1tag:blogger.com,1999:blog-6123577473607160262.post-80697004303338345322014-04-16T10:23:00.000+01:002014-04-16T10:23:02.719+01:00<div abp="1145">
</div>
<h3 abp="1146" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1147" lang="EN-GB"><span abp="1148" style="color: #20124d;">AIM
Shares: And Nichols PLC<o:p abp="1149"></o:p></span></span></h3>
<div abp="1150">
</div>
<div abp="1151" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="949">
<b abp="1152"><span abp="1153" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shapetype
id="_x0000_t75" coordsize="21600,21600" o:spt="75" o:preferrelative="t"
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</div>
<div abp="1157">
</div>
<div abp="121" class="separator" style="clear: both; text-align: center;">
<a abp="122" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDI8R2M2bgfHBjhVnFJiiVdfZE3CsAwecCwtdWNs_t_CDxSITYg_Pxv1mekvAmIthj3KDR5o04ISYFTXqiIvxee-KgX_01u_LbTXM5yupent__SDsFGMu2Qn-f4Ywm2ctKbP1DoSDPHp0/s1600/AIm+market+according+to+the+LSE.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="123" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDI8R2M2bgfHBjhVnFJiiVdfZE3CsAwecCwtdWNs_t_CDxSITYg_Pxv1mekvAmIthj3KDR5o04ISYFTXqiIvxee-KgX_01u_LbTXM5yupent__SDsFGMu2Qn-f4Ywm2ctKbP1DoSDPHp0/s1600/AIm+market+according+to+the+LSE.jpg" height="119" width="320" /></a></div>
<div abp="1158" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="959">
<span abp="1159" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1160" style="font-family: Calibri;">Introduction to the AIM market at the
London Stock Exchange<o:p abp="1161"></o:p></span></span></div>
</div>
<div abp="1162">
</div>
<div abp="1163" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="965">
<span abp="1164" style="font-family: Calibri;"><b abp="1165"><span abp="1166" lang="EN-GB">AIM</span></b><span abp="1167" lang="EN-GB"> (formerly the Alternative Investment
Market) was founded in 1995 to allow investors access to young companies that
could not qualify or would not pay the cost for a listing on the main market of
the London Stock Exchange (LSE). </span></span></div>
</div>
<div abp="1168">
</div>
<div abp="1169" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="972">
<span abp="1170" style="font-family: Calibri;"><b abp="1171"><span abp="1172" lang="EN-GB">According to the LSE</span></b><span abp="1173" lang="EN-GB">, "</span><b abp="1174"><span abp="1175" lang="EN-GB" style="color: black; mso-bidi-font-family: Arial;">AIM</span></b><span abp="1176" lang="EN-GB" style="color: black; mso-bidi-font-family: Arial;"> is the most
successful growth market in the world."</span><span abp="1177" lang="EN-GB"> At the
last count there were 1,094 companies listed on <b abp="1178">AIM </b>compared to a peak
of 1,399 eight years ago. Companies have raised 86 billion pounds since 1995,
yet the total value of all <b abp="1179">AIM</b> shares today is only 78 billion pounds. It
has been a wonderful source of fees and commissions for underwriters, brokers,
accountants, lawyers and market makers. But what about the humble investor?</span></span></div>
</div>
<div abp="1180">
</div>
<div abp="1181" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="985">
<span abp="1182" lang="EN-GB"><span abp="1183" style="font-family: Calibri;">The results of the <b abp="1184">AIM </b>ALL Share Index (blue) compared to the
FTSE All Share (red) for the past 10 years, shows just how rotten <b abp="1185">AIM</b>
shares have been, on average, for the investor:</span></span></div>
</div>
<div abp="1186">
</div>
<div abp="144" class="separator" style="clear: both; text-align: center;">
<a abp="145" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidGHXbf-nk1qYECo_JYTNU9ItbEW4GYsirbOl5mp5R5N-BY4C6O-lnFx5mnnQQMFpIiHuwB2bhdA3z2oDOpkOF92Ouw92PnYq2JGoksIiAew7eCFaqzToNKCDOnDoA4bfX840CeAXflzs/s1600/AIM+index+vs+Ftse+all+Google.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="146" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidGHXbf-nk1qYECo_JYTNU9ItbEW4GYsirbOl5mp5R5N-BY4C6O-lnFx5mnnQQMFpIiHuwB2bhdA3z2oDOpkOF92Ouw92PnYq2JGoksIiAew7eCFaqzToNKCDOnDoA4bfX840CeAXflzs/s1600/AIM+index+vs+Ftse+all+Google.png" height="175" width="400" /></a></div>
<div abp="1187" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; page-break-after: avoid; text-align: justify;">
<div abp="995">
<span abp="1188" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_1"
o:spid="_x0000_i1028" type="#_x0000_t75" alt="AIM index vs Ftse all Google.png"
style='width:415.5pt;height:182.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png"
o:title="AIM index vs Ftse all Google"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
</div>
<div abp="1191" align="center" class="MsoCaption" style="margin: 0cm 0cm 0pt; text-align: center;">
<div abp="999">
<span abp="1192" lang="EN-GB" style="color: windowtext; font-size: 10pt; font-weight: normal;"><span abp="1193" style="font-family: Calibri;">Graph courtesy Google Finance, click to enlarge<o:p abp="1194"></o:p></span></span></div>
</div>
<div abp="1195">
</div>
<div abp="1196" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<div abp="1005">
<span abp="1197" lang="EN-GB"><o:p abp="1198"><span abp="1199" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1201" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1010">
<span abp="1202" lang="EN-GB"><span abp="1203" style="font-family: Calibri;">Over 3,000 companies
have listed on AIM since 1995 and yet only one-third remain. Some have moved to
the main market and some have been acquired. But many have gone into
administration or delisted, leaving the shareholder with nothing or next to
nothing.</span></span></div>
</div>
<div abp="1205" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1014">
<span abp="1206" lang="EN-GB"><o:p abp="1207"><span abp="1208" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1209">
</div>
<div abp="1210" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1020">
<span abp="1211" style="font-family: Calibri;"><b abp="1212"><span abp="1213" lang="EN-GB">Yet there are excellent companies listed on AIM</span></b><span abp="1214" lang="EN-GB">. And <b abp="1215">AIM</b> shares have one feature that marks them out from
the main list: given certain requirements they are exempt from <b abp="1216">Inheritance Tax</b>.
This tax feature has attracted good, UK based family-run businesses that can
pass on their shares to the next generation without the 40% tax burden. It is
here that one finds the best companies.</span></span></div>
</div>
<div abp="1217">
</div>
<div abp="1218" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1029">
<span abp="1219" style="font-family: Calibri;"><b abp="1220"><span abp="1221" lang="EN-GB">As the tax concession is an important incentive to investing in AIM
shares</span></b><span abp="1222" lang="EN-GB">, it is important to know what companies will
qualify for "business relief" for <b abp="1223">Inheritance Tax</b>.</span></span></div>
</div>
<div abp="1224">
</div>
<div abp="1225" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1037">
<!--[if !supportLists]--><span abp="1226" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1227" style="mso-list: Ignore;">Ø<span abp="1228" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1229" dir="LTR"></span><span abp="1230" lang="EN-GB"><span abp="1231" style="font-family: Calibri;">The
company may not also be quoted on a "recognized overseas exchange"
(HMRC).</span></span></div>
</div>
<div abp="1232">
</div>
<div abp="1233" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1046">
<!--[if !supportLists]--><span abp="1234" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1235" style="mso-list: Ignore;">Ø<span abp="1236" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1237" dir="LTR"></span><span abp="1238" lang="EN-GB"><span abp="1239" style="font-family: Calibri;">The
company may not be engaged "wholly or mainly in dealing in securities,
stocks or shares, land or buildings, or in making or holding investments"
(HMRC).</span></span></div>
</div>
<div abp="1240">
</div>
<div abp="1241" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 37.5pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<div abp="1055">
<!--[if !supportLists]--><span abp="1242" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1243" style="mso-list: Ignore;">Ø<span abp="1244" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1245" dir="LTR"></span><span abp="1246" lang="EN-GB"><span abp="1247" style="font-family: Calibri;">If the company is acquired (or the investor
sells his shares) before 2 years are up, provided the funds are reinvested in
another <b abp="1248">AIM</b> company that complies with 1 and 2 above and together they
are held for at least 2 years, the investment will be free of Inheritance Tax.</span></span></div>
</div>
<div abp="1249">
</div>
<div abp="1250" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1065">
<span abp="1251" style="font-family: Calibri;"><b abp="1252"><span abp="1253" lang="EN-GB"><span abp="180" style="color: #741b47;">There are other considerations that are peculiar to investing in AIM
companies</span></span></b><span abp="1254" lang="EN-GB">. </span></span></div>
</div>
<div abp="1255">
</div>
<div abp="1256" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1073">
<span abp="1257" style="font-family: Calibri;"><b abp="1258"><span abp="1259" lang="EN-GB">As they are usually small cap, the touch</span></b><span abp="1260" lang="EN-GB">
- the bid to offer spread - can be very high. Invest in <b abp="1261">Venn Life Sciences </b>(market
capitalization of 6 million pounds), and the stock must appreciate by 14%
before you break even before stamp duty and commissions. </span></span></div>
</div>
<div abp="1262">
</div>
<div abp="1263" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1081">
<span abp="1264" style="font-family: Calibri;"><b abp="1265"><span abp="1266" lang="EN-GB">A second consideration</span></b><span abp="1267" lang="EN-GB"> is that, unlike
the main market, <b abp="1268">AIM’</b>s listing rules do not require companies to have a
minimum free float. "Free float" is the proportion of shares that are
freely traded in the market compared to the number held by all parties. Free
float is important because companies can be taken private by their owners at
the price they choose if they control 75% of outstanding shares.</span></span></div>
</div>
<div abp="1269">
</div>
<div abp="1270" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1089">
<span abp="1271" style="font-family: Calibri;"><b abp="1272"><span abp="1273" lang="EN-GB" style="color: black; mso-bidi-font-family: Arial;">BlueStar Secutech</span></b><span abp="1274" lang="EN-GB" style="color: black; mso-bidi-font-family: Arial;">, a Chinese manufacturer
of digital video equipment registered in the British Virgin Islands, was listed
on <b abp="1275">AIM</b> in 2007 at 48p a share. Six years later, after reporting a 60%
increase in earnings per share and a net cash position, it made a tender offer
of 2.5p a share. <b abp="1276">BlueStar's</b> net asset value per share was reported at
40p at that time. So shareholders were offered just 6% of the net asset value
of a profitable, cash rich trading company. As the free float was only 23%, outside
shareholders could not contest the price. </span><span abp="1277" lang="EN-GB">All <b abp="1278">AIM</b>
companies are obliged to inform the public of their free float on their
websites.</span></span></div>
</div>
<div abp="1279">
</div>
<div abp="1280" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1100">
<span abp="1281" style="font-family: Calibri;"><b abp="1282"><span abp="1283" lang="EN-GB">A third consideration</span></b><span abp="1284" lang="EN-GB"> <b abp="1285">is that AIM
stocks can easily run out of money</b>. Small and high risk companies often
find it impossible to get bank financing and they do not have the option of
issuing debt instruments. If in need, they must dilute shareholders via a
public offering or shut up shop.</span></span></div>
</div>
<div abp="1286">
</div>
<div abp="1287" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1108">
<span abp="1288" style="font-family: Calibri;"><b abp="1289"><span abp="1290" lang="EN-GB"><span abp="181" style="color: #741b47;">The wise investor will approach an AIM-quoted company with the
circumspection a bear approaches<span abp="182" style="mso-spacerun: yes;"> </span>a honey
trap</span></span></b><span abp="1292" lang="EN-GB">:</span></span></div>
</div>
<div abp="1293">
</div>
<div abp="1294" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1117">
<span abp="1295" lang="EN-GB"><span abp="1296" style="font-family: Calibri;">1. <b abp="1297">Stick to companies with no or little debt</b>, a profitable
trading record in a niche market and that are cash generative.</span></span></div>
</div>
<div abp="1298">
</div>
<div abp="1299" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1123">
<span abp="1300" lang="EN-GB"><span abp="1301" style="font-family: Calibri;">2. <b abp="1302">Be sure management can be trusted </b>to do the best for the
company and not just look after themselves.</span></span></div>
</div>
<div abp="1303">
</div>
<div abp="1304" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1129">
<span abp="1305" lang="EN-GB"><span abp="1306" style="font-family: Calibri;">3. <b abp="1307">Check whether the company is quoted on an overseas market</b>
and is eligible for business relief for Inheritance Tax.</span></span></div>
</div>
<div abp="1308">
</div>
<div abp="1309" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1135">
<span abp="1310" lang="EN-GB"><span abp="1311" style="font-family: Calibri;">4. <b abp="1312">Ensure that the free float is well in excess of 25%;</b> look
for well regarded institutional investors who are invested in the company.</span></span></div>
</div>
<div abp="1313">
</div>
<div abp="1314" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1141">
<span abp="1315" lang="EN-GB"><span abp="1316" style="font-family: Calibri;">5. <b abp="1317">Take into consideration the share price's bid to offer spread</b>.</span></span></div>
</div>
<div abp="1318">
</div>
<div abp="1319" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1147">
<span abp="1320" lang="EN-GB"><span abp="1321" style="font-family: Calibri;">6. <b abp="1322">Have a clear exit strategy</b>. You might need it.</span></span></div>
</div>
<div abp="1323">
</div>
<div abp="1324" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="1153">
<span abp="1325" lang="EN-GB"><span abp="1326" style="font-family: Calibri;">-----------------------------------------------------------------------------------</span></span></div>
</div>
<div abp="1327">
</div>
<h3 abp="1328" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #660000;">Nichols
PLC</span></h3>
<div abp="1328" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="1329"><span abp="1330" lang="EN-GB"><span abp="1331" style="font-family: Calibri;"><o:p abp="1332"></o:p></span></span></b> </div>
<div abp="1912" class="separator" style="clear: both; text-align: center;">
<a abp="1913" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ7P1E8qHuM6vqWREGQLv8m7U-gHLRCvp9eFB-FITFRlEzCHtmJUzpE1VbcLRg-mhKlbZhdEkdVXFtjzmzMvN7wIPUNWM8MqfwjgfbSQk1iO5L9yEian5iUfrQ4y9GlTLgxpMCsKpbWts/s1600/Vimto+can+Nichols+website.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1914" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZ7P1E8qHuM6vqWREGQLv8m7U-gHLRCvp9eFB-FITFRlEzCHtmJUzpE1VbcLRg-mhKlbZhdEkdVXFtjzmzMvN7wIPUNWM8MqfwjgfbSQk1iO5L9yEian5iUfrQ4y9GlTLgxpMCsKpbWts/s1600/Vimto+can+Nichols+website.png" /></a><a abp="225" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGafKlJfHZASKWHFSk8EdMdASAoeJPqvv61tlLxabBgAv6GKeeDJi_Er-CKrid57tX1CXqjh7G72zXK-RItEO0Z1QF03ZuWsoYc8KbwLK8FxrB9JTe2EACP8DjDH9SCg_TQKcqU0ZBL3k/s1600/Vimto+ad+from+the+1930s+N+website.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="226" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGafKlJfHZASKWHFSk8EdMdASAoeJPqvv61tlLxabBgAv6GKeeDJi_Er-CKrid57tX1CXqjh7G72zXK-RItEO0Z1QF03ZuWsoYc8KbwLK8FxrB9JTe2EACP8DjDH9SCg_TQKcqU0ZBL3k/s1600/Vimto+ad+from+the+1930s+N+website.jpg" /></a></div>
<div abp="1333" style="text-align: center;">
<span abp="1967" style="font-size: x-small;">Vimto can and pre-war advertisement, courtesy Nichols website</span> </div>
<div abp="1789" class="separator" style="clear: both; text-align: center;">
<a abp="184" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZqGi4i3tPYAT9l7pnDdBsSJ6sp785GzhGeq7cDHKe7P_Sti-uN-_kFGa9UZ6PyYtuWPZcqV4gOFFkXT7109Mr9wejxusnawxSAnxszdFBZZhfiws1RB1vMb9d2tzmrd2ZMIn21KU7fUA/s1600/Vimto+can+Nichols+website.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"></a> </div>
<div abp="1338">
</div>
<div abp="1339" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1171">
<span abp="1340" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1341" style="font-family: Calibri;"><o:p abp="1342"></o:p></span></span> </div>
</div>
<div abp="1349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1187">
<span abp="1350" style="font-family: Calibri;"><b abp="1351"><span abp="1352" lang="EN-US" style="mso-ansi-language: EN-US;">Nichols is a soft drinks company
based on Merseyside.</span></b><span abp="1353" lang="EN-US" style="mso-ansi-language: EN-US;">
In 2004, the company transferred its listing from the Main market to <b abp="1354">AIM</b>,
explaining that, after selling its foods business, the size of the company did
not warrant the costs associated with a Main listing. However, the family held
about one-third of the company's shares at that time, so Inheritance Tax
considerations may have paid a role in the decision to join <b abp="1355">AIM</b>. The
family now hold about one-fifth of its shares.<o:p abp="1356"></o:p></span></span></div>
</div>
<div abp="1357">
</div>
<div abp="1358" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1197">
<span abp="1359" style="font-family: Calibri;"><b abp="1360"><span abp="1361" lang="EN-US" style="mso-ansi-language: EN-US;">The company</span></b><span abp="1362" lang="EN-US" style="mso-ansi-language: EN-US;"> <strong abp="1202">has a good trading</strong> <strong abp="1203">history</strong>, a high return on
equity and holds net cash of 34 million pounds, 9% of its market value.<o:p abp="1363"></o:p></span></span></div>
</div>
<div abp="1364">
</div>
<div abp="1365" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1207">
<span abp="1366" style="font-family: Calibri;"><b abp="1367"><span abp="1368" lang="EN-US" style="mso-ansi-language: EN-US;">Nichols is currently eligible for
100% business relief for inheritance tax</span></b><span abp="1369" lang="EN-US" style="mso-ansi-language: EN-US;">, it has a 'free float' of 79%, a market
capitalization of 366 million pounds and it trades on a bid to offer spread of
just over 2%. <o:p abp="1370"></o:p></span></span></div>
</div>
<div abp="1371">
</div>
<div abp="1372" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1215">
<span abp="1373" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1374" style="font-family: Calibri;">Although <b abp="1375">Nichols's </b>brands,
either owned or under license, cover all main segments of the soft drinks
market, except for water, its share of the UK market is only about 1%. And the
total market has grown by a compound average of 3% since 2006 (British Soft
Drinks Association):<o:p abp="1376"></o:p></span></span></div>
</div>
<div abp="1377">
</div>
<table abp="1378" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 19.6pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1379">
<tr abp="1380" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1381" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1382" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1226">
<span abp="1383" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1384" style="font-family: Calibri;">Drink sales UK<o:p abp="1385"></o:p></span></span></div>
</div>
</td>
<td abp="1386" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1387" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1232">
<span abp="1388" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1389" style="font-family: Calibri;">Nichols's brands<o:p abp="1390"></o:p></span></span></div>
</div>
</td>
<td abp="1391" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1392" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1238">
<span abp="1393" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1394" style="font-family: Calibri;">Total UK Sales in <o:p abp="1395"></o:p></span></span></div>
</div>
<div abp="1396" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1243">
<span abp="1397" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1398" style="font-family: Calibri;">Pounds Million<o:p abp="1399"></o:p></span></span></div>
</div>
</td>
<td abp="1400" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1401" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1249">
<span abp="1402" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1403" style="font-family: Calibri;">% Total growth<o:p abp="1404"></o:p></span></span></div>
</div>
<div abp="1405" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1254">
<span abp="1406" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1407" style="font-family: Calibri;">2006 to 2012<o:p abp="1408"></o:p></span></span></div>
</div>
</td>
</tr>
<tr abp="1409" style="mso-yfti-irow: 1;">
<td abp="1410" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1411" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1261">
<span abp="1412" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1413" style="font-family: Calibri;">Carbonates<o:p abp="1414"></o:p></span></span></div>
</div>
</td>
<td abp="1415" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1416" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1267">
<span abp="1417" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1418" style="font-family: Calibri;">Vimto, Panda, Sunkist, Levi Roots<o:p abp="1419"></o:p></span></span></div>
</div>
</td>
<td abp="1420" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1421" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1273">
<span abp="1422" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1423" style="font-family: Calibri;">8,707<o:p abp="1424"></o:p></span></span></div>
</div>
</td>
<td abp="1425" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1426" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1279">
<span abp="1427" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1428" style="font-family: Calibri;">30% value<o:p abp="1429"></o:p></span></span></div>
</div>
</td>
</tr>
<tr abp="1430" style="mso-yfti-irow: 2;">
<td abp="1431" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1432" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1286">
<span abp="1433" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1434" style="font-family: Calibri;">Still & Juice drinks<o:p abp="1435"></o:p></span></span></div>
</div>
</td>
<td abp="1436" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1437" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1292">
<span abp="1438" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1439" style="font-family: Calibri;">Vimto,<o:p abp="1440"></o:p></span></span></div>
</div>
</td>
<td abp="1441" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1442" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1298">
<span abp="1443" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1444" style="font-family: Calibri;">1,820<o:p abp="1445"></o:p></span></span></div>
</div>
</td>
<td abp="1446" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1447" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1304">
<span abp="1448" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1449" style="font-family: Calibri;">14% value<o:p abp="1450"></o:p></span></span></div>
</div>
</td>
</tr>
<tr abp="1451" style="mso-yfti-irow: 3;">
<td abp="1452" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1453" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1311">
<span abp="1454" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1455" style="font-family: Calibri;">Dilutables<o:p abp="1456"></o:p></span></span></div>
</div>
</td>
<td abp="1457" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1458" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1317">
<span abp="1459" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1460" style="font-family: Calibri;">Vimto, Weight Watchers<o:p abp="1461"></o:p></span></span></div>
</div>
</td>
<td abp="1462" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1463" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1323">
<span abp="1464" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1465" style="font-family: Calibri;">955<o:p abp="1466"></o:p></span></span></div>
</div>
</td>
<td abp="1467" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1468" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1329">
<span abp="1469" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1470" style="font-family: Calibri;">20% value<o:p abp="1471"></o:p></span></span></div>
</div>
</td>
</tr>
<tr abp="1472" style="mso-yfti-irow: 4;">
<td abp="1473" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1474" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1336">
<span abp="1475" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1476" style="font-family: Calibri;">Fruit Juices & Smoothies<o:p abp="1477"></o:p></span></span></div>
</div>
</td>
<td abp="1478" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1479" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1342">
<span abp="1480" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1481" style="font-family: Calibri;">Weight Watchers<o:p abp="1482"></o:p></span></span></div>
</div>
</td>
<td abp="1483" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1484" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1348">
<span abp="1485" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1486" style="font-family: Calibri;">1,860<o:p abp="1487"></o:p></span></span></div>
</div>
</td>
<td abp="1488" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1489" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1354">
<span abp="1490" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1491" style="font-family: Calibri;">2% value<o:p abp="1492"></o:p></span></span></div>
</div>
</td>
</tr>
<tr abp="1493" style="mso-yfti-irow: 5;">
<td abp="1494" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1495" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1361">
<span abp="1496" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1497" style="font-family: Calibri;">Total<o:p abp="1498"></o:p></span></span></div>
</div>
</td>
<td abp="1499" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1500" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1367">
<span abp="1501" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><o:p abp="1502"><span abp="1503" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
</td>
<td abp="1504" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1505" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1373">
<span abp="1506" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1507" style="font-family: Calibri;">13,147<o:p abp="1508"></o:p></span></span></div>
</div>
</td>
<td abp="1509" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1510" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1379">
<span abp="1511" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1512" style="font-family: Calibri;">20% value<o:p abp="1513"></o:p></span></span></div>
</div>
</td>
</tr>
<tr abp="1514" style="mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td abp="1515" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.55pt;" valign="top" width="170"><div abp="1516" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1386">
<span abp="1517" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1518" style="font-family: Calibri;">Sports & Energy drinks<o:p abp="1519"></o:p></span></span></div>
</div>
<div abp="1520" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1391">
<span abp="1521" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1522" style="font-family: Calibri;">(Included in carbonates and still drinks)<o:p abp="1523"></o:p></span></span></div>
</div>
</td>
<td abp="1524" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 99.25pt;" valign="top" width="132"><div abp="1525" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1397">
<span abp="1526" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1527" style="font-family: Calibri;">Extreme Energy and Sport<o:p abp="1528"></o:p></span></span></div>
</div>
</td>
<td abp="1529" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1530" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1403">
<span abp="1531" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1532" style="font-family: Calibri;">1,665<o:p abp="1533"></o:p></span></span></div>
</div>
</td>
<td abp="1534" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113"><div abp="1535" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<div abp="1409">
<span abp="1536" lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US;"><span abp="1537" style="font-family: Calibri;">82% volume<o:p abp="1538"></o:p></span></span></div>
</div>
</td>
</tr>
</tbody></table>
<div abp="1539">
</div>
<div abp="1540" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="1415">
<span abp="1541" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="1542" style="font-family: Calibri;">From <i abp="1543">2013
Refreshing the Nation</i>, British Soft Drinks Association.<o:p abp="1544"></o:p></span></span></div>
</div>
<div abp="1545">
</div>
<div abp="1546" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1422">
<span abp="1547" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1548" style="font-family: Calibri;">While the total drinks market
(excluding bottled water) has grown by 20% in value, <strong>Nichols's </strong>sales have more
than doubled in this seven year period. <strong>Nichols</strong> does not give sales figures by
brands, but it is reasonable to assume that this is largely the result of
acquisitions and license agreements:<o:p abp="1549"></o:p></span></span></div>
</div>
<div abp="1550">
</div>
<div abp="1551" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 35.45pt; mso-add-space: auto; mso-list: l2 level4 lfo1; text-align: justify; text-indent: -14.15pt;">
<div abp="1428">
<!--[if !supportLists]--><a abp="1969" href="https://draft.blogger.com/" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"></a><span abp="1552" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1553" style="mso-list: Ignore;">·<span abp="1554" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1555" dir="LTR"></span><span abp="1556" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1557" style="font-family: Calibri;">2005 - Nichols
purchased <b abp="1558">Panda</b> (including Panda Cola, the 3rd cola drink after
Coca-Cola and Pepsi in the UK) for 5.5 million pounds.<o:p abp="1559"></o:p></span></span></div>
</div>
<div abp="1560">
</div>
<div abp="1561" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1439">
<!--[if !supportLists]--><span abp="1562" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1563" style="mso-list: Ignore;">·<span abp="1564" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1565" dir="LTR"></span><span abp="1566" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1567" style="font-family: Calibri;">2010 - it licensed <b abp="1568">Levi Roots</b> (Caribbean
flavoured carbonates) worldwide rights. <o:p abp="1569"></o:p></span></span></div>
</div>
<div abp="1570">
</div>
<div abp="1571" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1450">
<!--[if !supportLists]--><span abp="1572" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1573" style="mso-list: Ignore;">·<span abp="1574" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1575" dir="LTR"></span><span abp="1576" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1577" style="font-family: Calibri;">2011 - it licensed <b abp="1578">Weight Watchers</b>
cordials and fruit juices for the UK and Ireland.<o:p abp="1579"></o:p></span></span></div>
</div>
<div abp="1580">
</div>
<div abp="1581" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<div abp="1461">
<!--[if !supportLists]--><span abp="1582" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1583" style="mso-list: Ignore;">·<span abp="1584" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1585" dir="LTR"></span><span abp="1586" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1587" style="font-family: Calibri;">2012 - it licensed <b abp="1588">Extreme Sport and Energy</b>
for the UK.<o:p abp="1589"></o:p></span></span></div>
</div>
<div abp="1590">
</div>
<div abp="1591" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1472">
<span abp="1592" style="font-family: Calibri;"><b abp="1593"><span abp="1594" lang="EN-US" style="mso-ansi-language: EN-US;">Nichols' core brand in the UK is Vimto,
which it launched in 1908. </span></b><span abp="1595" lang="EN-US" style="mso-ansi-language: EN-US;">And <b abp="1596">Vimto</b> exports, mainly to the Middle East and Africa, account
for 21% of <b abp="1597">Nichols's</b> sales, where it relies on third party distributors.
The company sees its main growth coming from the convenience and online outlets
both in the UK and international markets. Sensitive to the anti-sugar campaign,
the company reduced the sugar content of its drinks by 20% in 2013.<o:p abp="1598"></o:p></span></span></div>
</div>
<div abp="1599">
</div>
<div abp="1600" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1482">
<span abp="1601" style="font-family: Calibri;"><b abp="1602"><span abp="1603" lang="EN-US" style="mso-ansi-language: EN-US;">Nichols Dispense</span></b><span abp="1604" lang="EN-US" style="mso-ansi-language: EN-US;"> is the third largest supplier of
dispensed soft drinks, to pubs etc., in the UK, after <b abp="1605">Britvic</b> and <b abp="1606">Coca-Cola
Enterprises</b>. <o:p abp="1607"></o:p></span></span></div>
</div>
<div abp="1608">
</div>
<div abp="1609" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1492">
<span abp="1610" style="font-family: Calibri;"><b abp="1611"><span abp="1612" lang="EN-US" style="mso-ansi-language: EN-US;">Shares in Nichols (in red) have
outperformed the FTSE All Share (in blue) by a wide margin</span></b><span abp="1613" lang="EN-US" style="mso-ansi-language: EN-US;">.<o:p abp="1614"></o:p></span></span></div>
</div>
<div abp="1615">
</div>
<div abp="1616" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<div abp="1971" class="separator" style="clear: both; text-align: center;">
<a abp="1972" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtbmYpSFZGx43_LY080xrSbSxoerqmqxGmeKr8m5bXrVgVspnhrOGGWXiIrNEFCEsMlhlSImO6kTnp3vUmvYcR8daRctVDuDe5_YNTZtBvSRi6LCGaDTK-Cq_r0uTOIVPVMWcqOcQA3SQ/s1600/Nichols+vs+Ftes+All+2014..png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1973" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhtbmYpSFZGx43_LY080xrSbSxoerqmqxGmeKr8m5bXrVgVspnhrOGGWXiIrNEFCEsMlhlSImO6kTnp3vUmvYcR8daRctVDuDe5_YNTZtBvSRi6LCGaDTK-Cq_r0uTOIVPVMWcqOcQA3SQ/s1600/Nichols+vs+Ftes+All+2014..png" height="160" width="400" /></a><!--[if gte vml 1]><v:shape id="Picture_x0020_5"
o:spid="_x0000_i1025" type="#_x0000_t75" alt="Nichols vs Ftes All 2014..png"
style='width:425.25pt;height:171pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image008.png"
o:title="Nichols vs Ftes All 2014."/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></div>
</div>
<div abp="1621">
</div>
<div abp="1622" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<div abp="1507">
<span abp="1623" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="1624" style="font-family: Calibri;">Courtesy <i abp="1625">Investors
Chronicle</i>, click to enlarge<o:p abp="1626"></o:p></span></span></div>
</div>
<div abp="1627">
</div>
<div abp="1628" class="Default" style="margin: 0cm 0cm 0pt;">
<div abp="1514">
<b abp="1629"><span abp="1630" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1631"> </o:p></span></b></div>
</div>
<div abp="1632">
</div>
<div abp="1633" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1520">
<b abp="1634"><span abp="1635" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Nichols runs a very lean organization. </span></b><span abp="1636" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">It bills
640,000 pounds per employee. The company relies on contracting out production,
which keeps capital expenditure and inventory low while avoiding any
temptation, as its CEO remarks, "to feed the factory."<o:p abp="1637"></o:p></span></div>
</div>
<div abp="1638">
</div>
<div abp="1639" class="Default" style="margin: 0cm 0cm 0pt;">
<div abp="1527">
<span abp="1640" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1641"> </o:p></span></div>
</div>
<div abp="1642">
</div>
<div abp="1643" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1532">
<b abp="1644"><span abp="1645" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Financial results are excellent</span></b><span abp="1646" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">:</span></div>
</div>
<div abp="1649" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1539">
<span abp="1650" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1651"> </o:p></span></div>
</div>
<div abp="1652">
</div>
<div abp="1653" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1544">
<!--[if !supportLists]--><span abp="1654" lang="EN-US" style="font-family: Wingdings; font-size: 11pt; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1655" style="mso-list: Ignore;">Ø<span abp="1656" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1657" dir="LTR"></span><b abp="1658"><span abp="1659" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Earnings per share</span></b><span abp="1660" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> have increased by a compound 16% per
annum since 2004, and equity per share has increased by a compound 12% per
annum in the same period.</span></div>
</div>
<div abp="1663" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1555">
<span abp="1664" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1665"> </o:p></span></div>
</div>
<div abp="1666">
</div>
<div abp="1667" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1560">
<!--[if !supportLists]--><span abp="1668" lang="EN-US" style="font-family: Wingdings; font-size: 11pt; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1669" style="mso-list: Ignore;">Ø<span abp="1670" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1671" dir="LTR"></span><b abp="1672"><span abp="1673" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Net margins</span></b><span abp="1674" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> are a comfortable 15% of sales.</span></div>
</div>
<div abp="1677" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1571">
<span abp="1678" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1679"> </o:p></span></div>
</div>
<div abp="1680">
</div>
<div abp="1681" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1576">
<!--[if !supportLists]--><span abp="1682" lang="EN-US" style="font-family: Wingdings; font-size: 11pt; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1683" style="mso-list: Ignore;">Ø<span abp="1684" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1685" dir="LTR"></span><b abp="1686"><span abp="1687" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Return on equity</span></b><span abp="1688" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">, both historically and on retained
earnings, averages over 30%, and this is without any financial leverage. </span></div>
</div>
<div abp="1691" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1587">
<span abp="1692" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1693"> </o:p></span></div>
</div>
<div abp="1694">
</div>
<div abp="1695" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<div abp="1592">
<!--[if !supportLists]--><span abp="1696" lang="EN-US" style="font-family: Wingdings; font-size: 11pt; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="1697" style="mso-list: Ignore;">Ø<span abp="1698" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="1699" dir="LTR"></span><b abp="1700"><span abp="1701" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Net operating cash flow</span></b><span abp="1702" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">, after small amounts
of capital expenditure, covers the dividend 2.2 times.<b abp="1703"> </b>The company held
34 million pounds in net cash at the 2013 year end.<o:p abp="1704"></o:p></span></div>
</div>
<div abp="1705">
</div>
<div abp="1706" class="Default" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1604">
<span abp="1707" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p abp="1708"> </o:p></span></div>
</div>
<div abp="1709">
</div>
<div abp="1710" class="Default" style="margin: 0cm 0cm 0pt;">
<div abp="1609">
<b abp="1711"><span abp="1712" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">At 1,008p, Nichols trades on an historical PE ratio of 22 and yields 2%.</span></b><span abp="1713" lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> The chairman's outlook is positive (2013 Annual Report):<o:p abp="1714"></o:p></span></div>
</div>
<div abp="1715">
</div>
<div abp="1716" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 21.3pt; text-align: justify;">
<div abp="1616">
<span abp="1717" lang="EN-US" style="color: black; font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-font-family: Arial;"><span abp="1718" style="font-family: Calibri;">"Although economic indicators suggest
signs of optimism, there is evidence that consumer spending in the UK remains
cautious and we expect the UK retail market to remain challenging in 2014.
Despite this environment we are confident that the Group can maintain its
strong performance into 2014. We will continue to invest in our brands and grow
distribution in both our UK and international markets. January saw the launch
of the “Vimto Squeezy” product which takes the brand into the new ‘water
enhancer’ category and in April consumers will see the new Vimto TV campaign."<o:p abp="1719"></o:p></span></span></div>
</div>
<div abp="1720">
</div>
<div abp="1721" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1622">
<span abp="1722" lang="EN-US" style="color: black; font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US; mso-bidi-font-family: Arial;"><o:p abp="1723"><span abp="1724" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1725">
</div>
<div abp="1726" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1628">
<span abp="1727" style="font-family: Calibri;"><b abp="1728"><span abp="1729" lang="EN-US" style="mso-ansi-language: EN-US;">My valuation model values Nichols' shares at between 1,000p and 1200p, </span></b><span abp="1730" lang="EN-US" style="mso-ansi-language: EN-US;">depending on the assumption used for
future return on equity.* Nichols' present price of 1,008p is 19% off its recent
all-time high, reflecting the recent decline in small cap shares.<o:p abp="1731"></o:p></span></span></div>
</div>
<div abp="1732">
</div>
<div abp="1733" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1636">
<span abp="1734" style="font-family: Calibri;"><span abp="1735" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1736" style="mso-spacerun: yes;"> </span></span><span abp="1737" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">*Assumptions:
earnings per share growth 10% p.a.; equity per share growth 10% p.a.; return on
equity 25% or 30%; dividend payout 43% of earnings; average PE ratio of 21.5,
all discounted at 10.8% (3.8% SLXX + 2% operating risk + 5% margin of safety)
for the years 2014-19.<o:p abp="1738"></o:p></span></span></div>
</div>
<div abp="1739">
</div>
<div abp="1740" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1644">
<span abp="1741" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p abp="1742"><span abp="1743" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1744">
</div>
<div abp="1745" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1650">
<span abp="1746" style="font-family: Calibri;"><b abp="1747"><span abp="1748" lang="EN-US" style="mso-ansi-language: EN-US;">The cautious investor will note that</span></b><span abp="1749" lang="EN-US" style="mso-ansi-language: EN-US;">:</span></span></div>
</div>
<div abp="1752" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1658">
<span abp="1753" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1754"><span abp="1755" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1756">
</div>
<div abp="1757" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1664">
<span abp="1758" style="font-family: Calibri;"><span abp="1759" lang="EN-US" style="mso-ansi-language: EN-US;">1. <b abp="1760">The soft drinks business is fiercely competitive</b>. <b abp="1761">Nichols</b>
is dwarfed by <b abp="1762">Coca-Cola, Pepsi, Snapple, Suntory, Britvic and A G Barr</b>
(see </span><span abp="1763" lang="EN-GB"><a abp="1764" href="http://thejoyfulinvestor.blogspot.co.uk/2013_09_01_archive.html"><span abp="1765" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1766" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013_09_01_archive.html</span></span></a></span><span abp="1767" lang="EN-US" style="mso-ansi-language: EN-US;">). This makes it very difficult for <b abp="1768">Nichols</b>
to get shelf space in the supermarket chains. <o:p abp="1769"></o:p></span></span></div>
</div>
<div abp="1770">
</div>
<div abp="1771" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1679">
<span abp="1772" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1773"><span abp="1774" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1775">
</div>
<div abp="1776" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1685">
<span abp="1777" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1778" style="font-family: Calibri;">2. <b abp="1779">The underlying soft drinks business is not growing in volume terms
in the UK</b>. <b abp="1780">Nichols </b>management has proven to be wily. It has improved
margins and licensed new products. But, can it match its past performance? <o:p abp="1781"></o:p></span></span></div>
</div>
<div abp="1782">
</div>
<div abp="1783" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1693">
<span abp="1784" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1785"><span abp="1786" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1787">
</div>
<div abp="1788" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1699">
<span abp="1789" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1790" style="font-family: Calibri;">3. <b abp="1791">The adjusted earnings for 2013, which showed an increase of 10% on
2012, excludes</b> 1.7 million pounds for management restructuring and a 2
million pounds provision for a claim from its former Pakistan distributor. As a
result, reported earnings declined slightly on 2012.<o:p abp="1792"></o:p></span></span></div>
</div>
<div abp="1793">
</div>
<div abp="1794" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1706">
<span abp="1795" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1796"><span abp="1797" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1798">
</div>
<div abp="1799" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1712">
<span abp="1800" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1801" style="font-family: Calibri;">4. <b abp="1802">Cash generation is consistently good</b>, with a year-on-year increase
of 10 million pounds in the cash account. Cash conversion exceeded 100% of
after tax earnings in 2013. The company has no debt and a cash balance of 34
million.<o:p abp="1803"></o:p></span></span></div>
</div>
<div abp="1804">
</div>
<div abp="1805" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<div abp="1719">
<span abp="1806" lang="EN-GB"><o:p abp="1807"><span abp="1808" style="font-family: Calibri;"> </span></o:p></span></div>
</div>
<div abp="1809">
</div>
<div abp="1810" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<div abp="1725">
<span abp="1811" lang="EN-GB"><span abp="1812" style="font-family: Calibri;">5<b abp="1813">. It is reassuring that the Chairman</b>,
grandson of the founder, owns 6% of the company and that the Nichols family
hold one-fifth of its shares. The company's successful formula is unlikely to
be changed by an over enthusiastic CEO.<span abp="1814" style="mso-spacerun: yes;"> </span></span></span></div>
</div>
<div abp="1815">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com1tag:blogger.com,1999:blog-6123577473607160262.post-9719990019307099242014-04-08T17:30:00.000+01:002014-04-08T17:30:23.041+01:00<div abp="293">
</div>
<h3 abp="294" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="295" lang="EN-GB"><span abp="296" style="color: #20124d;">Investment
Trusts (2): And BlackRock Commodities Income Investment Trust<o:p abp="297"></o:p></span></span></h3>
<div abp="298">
</div>
<div abp="982" class="separator" style="clear: both; text-align: center;">
<a abp="983" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIsNJpu8o4CaMIifb1xMZuye60nNkkgkWArtbCtzzXvhsdY0jKlzyENh0kEa-MAfDotRNkR7HvkXNvc1X-VCsMKB5R_AR93XBsJ-DQRYjik3yG7WLnXjSdprT8nWv7C44BtKIvUy8LhTA/s1600/Amsterdam+Stock+Exchange,+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="984" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIsNJpu8o4CaMIifb1xMZuye60nNkkgkWArtbCtzzXvhsdY0jKlzyENh0kEa-MAfDotRNkR7HvkXNvc1X-VCsMKB5R_AR93XBsJ-DQRYjik3yG7WLnXjSdprT8nWv7C44BtKIvUy8LhTA/s1600/Amsterdam+Stock+Exchange,+wiki.jpg" height="320" width="241" /></a><!--[endif]--></div>
<div abp="313">
</div>
<div abp="314" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="315" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="316" style="font-family: Calibri;">The
first mutual fund (1774) was founded at Amsterdam's Stock Exchange, courtesy
Wikipedia <o:p abp="317"></o:p></span></span></div>
<div abp="318">
</div>
<div abp="319" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="320"><span abp="321" lang="EN-GB"><o:p abp="322"><span abp="323" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="325" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="326" style="font-family: Calibri;"><b abp="327"><span abp="328" lang="EN-GB">The advantages of Investment Trusts as investment vehicles</span></b><span abp="329" lang="EN-GB"> over Open Ended Investment Companies (OEICs) and Exchange Traded
Funds (ETFs) are discussed in the previous article at <a abp="330" href="http://thejoyfulinvestor.blogspot.co.uk/2014_03_01_archive.html"><span abp="331" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2014_03_01_archive.html</span></a>
</span></span></div>
<div abp="332">
</div>
<div abp="333" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="334" style="font-family: Calibri;"><b abp="335"><span abp="336" lang="EN-GB">To resume, on average ITs perform better than</span></b><span abp="337" lang="EN-GB"> ETFs and OEICs, as well as their benchmark indices, in nearly all
equity markets. The one exception is the USA, where ITs perform about the same
as ETFs and their benchmarks. It might surprise the sceptical investor, but
fund managers, given the right structure, do perform better than their
benchmarks.</span></span></div>
<div abp="338">
</div>
<div abp="339" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="340" style="font-family: Calibri;"><b abp="341"><span abp="342" lang="EN-GB">John Baron </span></b><span abp="343" lang="EN-GB">is a former fund manager and
author of the <i abp="344">Financial Times'</i> Guide to <b abp="345">Investment Trusts </b>(Pearson,
2013). Mr Baron runs two live, funded portfolios of <b abp="346">investment trusts</b>,
which he publishes monthly in the <i abp="347">Investors Chronicle</i>. Both of his
portfolios have handily outperformed their benchmarks over the past five years:
</span></span></div>
<div abp="348">
</div>
<table abp="349" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 26.7pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="350">
<tr abp="351" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="352" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 7cm;" valign="top" width="265">
<div abp="353" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="354" lang="EN-GB"><span abp="355" style="font-family: Calibri;">Return
Jan 2009 to April 2014</span></span></div>
</td>
<td abp="356" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 98.95pt;" valign="top" width="132">
<div abp="357" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="358" lang="EN-GB"><span abp="359" style="font-family: Calibri;">Growth
Portfolio</span></span></div>
</td>
<td abp="360" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123">
<div abp="361" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="362" lang="EN-GB"><span abp="363" style="font-family: Calibri;">Income
Portfolio</span></span></div>
</td>
</tr>
<tr abp="364" style="mso-yfti-irow: 1;">
<td abp="365" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 7cm;" valign="top" width="265">
<div abp="366" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="367" lang="EN-GB"><span abp="368" style="font-family: Calibri;"><span abp="369" style="mso-spacerun: yes;"> </span>Mr Baron's portfolio</span></span></div>
</td>
<td abp="370" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 98.95pt;" valign="top" width="132">
<div abp="371" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="372" lang="EN-GB"><span abp="373" style="font-family: Calibri;">+130%</span></span></div>
</td>
<td abp="374" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123">
<div abp="375" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="376" lang="EN-GB"><span abp="377" style="font-family: Calibri;">+108%</span></span></div>
</td>
</tr>
<tr abp="378" style="mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td abp="379" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 7cm;" valign="top" width="265">
<div abp="380" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="381" lang="EN-GB"><span abp="382" style="font-family: Calibri;"><span abp="383" style="mso-spacerun: yes;"> </span>FTSE/WMA Private Investor Indices </span></span></div>
</td>
<td abp="384" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 98.95pt;" valign="top" width="132">
<div abp="385" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="386" lang="EN-GB"><span abp="387" style="font-family: Calibri;">+71%</span></span></div>
</td>
<td abp="388" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.4pt;" valign="top" width="123">
<div abp="389" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="390" lang="EN-GB"><span abp="391" style="font-family: Calibri;">+57%</span></span></div>
</td>
</tr>
</tbody></table>
<div abp="392">
</div>
<div abp="393" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="394"><span abp="395" lang="EN-GB"><o:p abp="396"><span abp="397" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="398">
</div>
<div abp="399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="400" style="font-family: Calibri;"><b abp="401"><span abp="402" lang="EN-GB">His Growth Portfolio</span></b><span abp="403" lang="EN-GB"> is currently 15%
invested in bonds, 6% in commercial property, 1% in cash and 79% in equities.
He uses 22 ITs and one ETF. The Income Portfolio has 36.5% invested in bonds,
9% in commercial property, 1% in cash and 53.5% in equities. The funds are
invested in 19 ITs and two ETFs. He only uses ETFs for part of his bond
holdings.</span></span></div>
<div abp="404">
</div>
<div abp="405" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="406" style="font-family: Calibri;"><b abp="407"><span abp="408" lang="EN-GB">The annualised outperformance of 9.7%</span></b><span abp="409" lang="EN-GB">
for the Growth Portfolio and 8.1% outperformance for the Income Portfolio compared
to their benchmarks are exceptional. In part, this is due to Mr Baron's choice
of ITs and in part to the underlying performance of the IT fund managers. </span></span></div>
<div abp="410">
</div>
<div abp="411" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="412" lang="EN-GB"><span abp="413" style="font-family: Calibri;">The main considerations for IT investing are covered in the previous
article at </span><a abp="414" href="http://thejoyfulinvestor.blogspot.co.uk/2014_03_01_archive.html"><span abp="415" style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2014_03_01_archive.html</span></a><span abp="416" style="font-family: Calibri;">
</span></span></div>
<div abp="417">
</div>
<div abp="418" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="419" lang="EN-GB"><span abp="420" style="font-family: Calibri;">-------------------------------------------------------------------------------------</span></span></div>
<div abp="421">
<b abp="423"><span abp="424" lang="EN-GB"><o:p abp="425"><span abp="426" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="427">
</div>
<h3 abp="428" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="430" lang="EN-GB"><span style="color: #660000;">BlackRock
Commodities Income Investment Trust<o:p abp="432"></o:p></span></span></h3>
<div abp="433">
</div>
<div abp="434" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="435"><span abp="436" lang="EN-GB"><o:p abp="437"><span abp="438" style="font-family: Calibri;"> </span></o:p></span></b><div abp="1044" class="separator" style="clear: both; text-align: center;">
<b abp="435"><span abp="438" style="font-family: Calibri;"><a abp="1045" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiy8FSyk8UGOZlLyVWtKkeOhJ9ADtiiuodx3YeDa6IThHOlwUKEBEz8S77JgcOgMVdFBk9SoIsnuEb6wWrN6-9fHNp1d7X1qpobIljchw4kPOhAY99ksAG7qUtcZ8VB0bHYgVQxOwCIDyI/s1600/Chino_copper_mine.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1046" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiy8FSyk8UGOZlLyVWtKkeOhJ9ADtiiuodx3YeDa6IThHOlwUKEBEz8S77JgcOgMVdFBk9SoIsnuEb6wWrN6-9fHNp1d7X1qpobIljchw4kPOhAY99ksAG7qUtcZ8VB0bHYgVQxOwCIDyI/s1600/Chino_copper_mine.jpg" height="240" width="320" /></a></span></b></div>
<br />
<div abp="439" style="text-align: center;">
<!--[if gte vml 1]><v:shape
id="Picture_x0020_1" o:spid="_x0000_i1029" type="#_x0000_t75" alt="Chino_copper_mine.jpg"
style='width:303.75pt;height:228pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.jpg"
o:title="Chino_copper_mine"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="445" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="446" style="font-family: Calibri;">Chino
Copper Mine, New Mexico, courtesy Wikipedia<o:p abp="447"></o:p></span></span></div>
<div abp="448">
</div>
<div abp="449" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="450" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"></span> </div>
<div abp="454" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="455" style="font-family: Calibri;"><b abp="456"><span abp="457" lang="EN-GB">The worst performing Investment Trust (IT) sector over the last
three years</span></b><span abp="458" lang="EN-GB"> is commodities and natural resources.
On average, this sector has lost 51% of its value in this time, according to
Trustnet. </span></span></div>
<div abp="459">
</div>
<div abp="460" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="461" style="font-family: Calibri;"><b abp="462"><span abp="463" lang="EN-GB">No IT sector presents a more contrarian theme than commodities and
natural resources</span></b><span abp="464" lang="EN-GB">. </span></span></div>
<div abp="465">
</div>
<div abp="466" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="467" style="font-family: Calibri;"><b abp="468"><span abp="469" lang="EN-GB">BlackRock Commodities Income Investment Trust (BRCI), capitalised at
108 million pounds, </span></b><span abp="470" lang="EN-GB">is the best performing<b abp="471"> IT </b>in
the commodities and natural resources category over one and three years
(Trustnet). Mr Baron has included it in his income portfolio. The shares (in
blue) and net asset value (in yellow) have comfortably beaten its benchmark (in
red):</span></span></div>
<div abp="472">
</div>
<div abp="1079" class="separator" style="clear: both; text-align: center;">
<a abp="1080" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_wayKB5dCIIgiUr4NgqBGv_-hAyq7vrF7mSZQ30hT8mmIktC_n2sYtVovSwyqXIdOB6IYekXNrHfrIMuiGspLTd1ukPvWdRYbp19nRuUA_2LcJRbg4vzxDeMPD8OfwPp9M1kXvfjXRIE/s1600/Blackrock+Commodities+IT+Vs+Commodities+Index.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1081" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_wayKB5dCIIgiUr4NgqBGv_-hAyq7vrF7mSZQ30hT8mmIktC_n2sYtVovSwyqXIdOB6IYekXNrHfrIMuiGspLTd1ukPvWdRYbp19nRuUA_2LcJRbg4vzxDeMPD8OfwPp9M1kXvfjXRIE/s1600/Blackrock+Commodities+IT+Vs+Commodities+Index.png" height="153" width="400" /></a></div>
<div abp="473" align="center" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="474" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_2" o:spid="_x0000_i1028"
type="#_x0000_t75" alt="Blackrock Commodities IT Vs Commodities Index.png"
style='width:425.25pt;height:163.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image005.png"
o:title="Blackrock Commodities IT Vs Commodities Index"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span abp="476" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"></span><br /></div>
<div abp="479" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="480" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="481" style="font-family: Calibri;">BRCI
share price and NAV compared to the benchmark, courtesy Trustnet. Click to
enlarge<o:p abp="482"></o:p></span></span></div>
<div abp="483">
</div>
<div abp="484" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="485" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="486"><span abp="487" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="489" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="490" lang="EN-GB"><span abp="491" style="font-family: Calibri;">The benchmark used by <b abp="492">BRCI</b>
is the average of the MSCI indices on energy companies and commodity companies.</span></span></div>
<div abp="493">
</div>
<div abp="494" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="495" lang="EN-GB"><o:p abp="496"><span abp="497" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="499" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="500" style="font-family: Calibri;"><b abp="501"><span abp="502" lang="EN-GB">By investing in both
the energy and mining sectors,</span></b><span abp="503" lang="EN-GB"> <b abp="504">BRCI</b> has the
flexibility to move its funds from one sector to the other. This gives it an
advantage over ITs that are limited by their mandate to investing in either
energy or mining. </span></span></div>
<div abp="505">
<span abp="507" lang="EN-GB"><o:p abp="508"><span abp="509" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="510">
</div>
<div abp="511" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="512" style="font-family: Calibri;"><b abp="513"><span abp="514" lang="EN-GB">At the end of
February</span></b><span abp="515" lang="EN-GB">, about 40% of <b abp="516">BRCI</b>'s funds were
invested in ten companies. Seven are in the energy sector (<strong>BP, Canadian Oil
Sands, Chevron, ENI, ExxonMobil, Royal Dutch Shell and Total</strong>) and three in
mining (<strong>BHP Billiton, GlencoreXstrata and Rio Tinto</strong>). Geographically, 41% of
the <b abp="517">IT'</b>s assets are in companies with global operations, with another
40% in companies based in the USA and Canada. By sector, <b abp="518">BRCI</b>'s assets
are allocated as follows:</span></span></div>
<div abp="519">
<span abp="521" lang="EN-GB"><o:p abp="522"><span abp="523" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="524">
</div>
<div abp="525" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="526" style="font-family: Calibri;"><b abp="527"><u abp="528"><span abp="529" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">Sector (as at 28.02.2014)<span abp="530" style="mso-tab-count: 1;"> </span></span></u></b><b abp="531"><span abp="532" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"> <span abp="533" style="mso-tab-count: 1;"> </span><u abp="534"><span abp="535" style="mso-spacerun: yes;"> </span>% of BRCI's Total Assets</u><o:p abp="536"></o:p></span></b></span></div>
<div abp="537">
</div>
<div abp="538" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="539" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="540" style="font-family: Calibri;">Integrated Oil <span abp="541" style="mso-tab-count: 4;"> </span>36.1<o:p abp="542"></o:p></span></span></div>
<div abp="543">
</div>
<div abp="544" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="545" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="546" style="font-family: Calibri;">Diversified <span abp="547" style="mso-tab-count: 4;"> </span>20.1<o:p abp="548"></o:p></span></span></div>
<div abp="549">
</div>
<div abp="550" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="551" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="552" style="font-family: Calibri;">Exploration & Production <span abp="553" style="mso-tab-count: 1;"> </span><span abp="554" style="mso-tab-count: 1;"> </span><span abp="555" style="mso-tab-count: 1;"> </span>13.9<o:p abp="556"></o:p></span></span></div>
<div abp="557">
</div>
<div abp="558" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="559" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="560" style="font-family: Calibri;">Copper<span abp="561" style="mso-tab-count: 5;"> </span>
7.6<o:p abp="562"></o:p></span></span></div>
<div abp="563">
</div>
<div abp="564" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="565" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="566" style="font-family: Calibri;">Gold<span abp="567" style="mso-tab-count: 5;"> </span>
6.2<o:p abp="568"></o:p></span></span></div>
<div abp="569">
</div>
<div abp="570" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="571" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="572" style="font-family: Calibri;">Oil Sands<span abp="573" style="mso-tab-count: 4;"> </span>
4.9<o:p abp="574"></o:p></span></span></div>
<div abp="575">
</div>
<div abp="576" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="577" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="578" style="font-family: Calibri;">Iron Ore <span abp="579" style="mso-tab-count: 4;"> </span>4.0<o:p abp="580"></o:p></span></span></div>
<div abp="581">
</div>
<div abp="582" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="583" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="584" style="font-family: Calibri;">Oil Services <span abp="585" style="mso-tab-count: 4;"> </span>3.3<o:p abp="586"></o:p></span></span></div>
<div abp="587">
</div>
<div abp="588" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="589" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="590" style="font-family: Calibri;">Distribution<span abp="591" style="mso-tab-count: 4;"> </span>
2.8<o:p abp="592"></o:p></span></span></div>
<div abp="593">
</div>
<div abp="594" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="595" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="596" style="font-family: Calibri;">Nickel<span abp="597" style="mso-tab-count: 5;"> </span>
2.6<o:p abp="598"></o:p></span></span></div>
<div abp="599">
</div>
<div abp="600" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="601" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="602" style="font-family: Calibri;">Coal<span abp="603" style="mso-tab-count: 5;"> </span>
2.5<o:p abp="604"></o:p></span></span></div>
<div abp="605">
</div>
<div abp="606" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="607" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="608" style="font-family: Calibri;">Fertilizers<span abp="609" style="mso-tab-count: 4;"> </span>
2.0<o:p abp="610"></o:p></span></span></div>
<div abp="611">
</div>
<div abp="612" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="613" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="614" style="font-family: Calibri;">Aluminium<span abp="615" style="mso-tab-count: 4;"> </span>
1.5<o:p abp="616"></o:p></span></span></div>
<div abp="617">
</div>
<div abp="618" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="619" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="620" style="font-family: Calibri;">Silver<span abp="621" style="mso-tab-count: 5;"> </span>
1.2<o:p abp="622"></o:p></span></span></div>
<div abp="623">
</div>
<div abp="624" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="625" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="626" style="font-family: Calibri;">Uranium<span abp="627" style="mso-tab-count: 4;"> </span>
1.1<o:p abp="628"></o:p></span></span></div>
<div abp="629">
</div>
<div abp="630" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="631" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="632" style="font-family: Calibri;">Platinum<span abp="633" style="mso-tab-count: 4;"> </span>
0.5<o:p abp="634"></o:p></span></span></div>
<div abp="635">
</div>
<div abp="636" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="637" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="638" style="font-family: Calibri;">Current liabilities<span abp="639" style="mso-tab-count: 1;"> </span><span abp="640" style="mso-tab-count: 1;"> </span><span abp="641" style="mso-tab-count: 2;"> </span><u abp="642">
(10.3)<o:p abp="643"></o:p></u></span></span></div>
<div abp="644">
</div>
<div abp="645" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="646" style="font-family: Calibri;"><u abp="647"><span abp="648" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">TOTAL</span></u><span abp="649" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="650" style="mso-tab-count: 5;"> </span><u abp="651">
100.0<o:p abp="652"></o:p></u></span></span></div>
<div abp="653">
</div>
<div abp="654" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="655" lang="EN-GB"><o:p abp="656"><span abp="657" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="658">
</div>
<div abp="659" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="660" style="font-family: Calibri;"><b abp="661"><span abp="662" lang="EN-GB">The fund's stated
objective</span></b><span abp="663" lang="EN-GB"> is "To achieve an annual dividend
target and, over the long term, capital growth by investing primarily in
securities of companies operating in the mining and energy sector." In practice,
<b abp="664">BRCI</b> has increased the dividend by an average of 4% every year since its
launch in 2005. At the present share price of 108p, <b abp="665">BRCI</b> yields 5.6%.</span></span></div>
<div abp="666">
<span abp="668" lang="EN-GB"><o:p abp="669"><span abp="670" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="671">
</div>
<div abp="672" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="673" style="font-family: Calibri;"><b abp="674"><span abp="675" lang="EN-GB">However, revenue
earnings per share have remained static over this period</span></b><span abp="676" lang="EN-GB">. Base metal prices have fallen significantly in recent years and, consequently,
earnings collapsed at the large mining companies. The ten-year chart of copper
prices ($ per ton) illustrates the extreme volatility of metal prices in this
period.</span></span></div>
<div abp="677">
</div>
<div abp="678" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="679" lang="EN-GB"><o:p abp="680"><span abp="681" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="682">
</div>
<div abp="1097" class="separator" style="clear: both; text-align: center;">
<a abp="1098" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9r4jckDOGgVsjbpCMBgEwxFcYs4oMX7dxL3HRk9G2sb5djphZyQvcFdNrBpVmBzaGiRzIYesqr4Y4HMh7ueDtIPhtoF6Kt0fCr13Xy1BQl6E55mVNwwo1skDAPzKJLb9H-erJSDKl4Qc/s1600/copper+price+10+years.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1099" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9r4jckDOGgVsjbpCMBgEwxFcYs4oMX7dxL3HRk9G2sb5djphZyQvcFdNrBpVmBzaGiRzIYesqr4Y4HMh7ueDtIPhtoF6Kt0fCr13Xy1BQl6E55mVNwwo1skDAPzKJLb9H-erJSDKl4Qc/s1600/copper+price+10+years.gif" height="336" width="400" /></a></div>
<div abp="683" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="684" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_5" o:spid="_x0000_i1027" type="#_x0000_t75" alt="copper price 10 years.gif"
style='width:277.5pt;height:234pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image007.gif"
o:title="copper price 10 years"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
<div abp="686" style="text-align: center;">
<span abp="688" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="689" style="font-family: Calibri;">10-year
copper prices, courtesy www.fastmarkets.com. Click to enlarge<o:p abp="690"></o:p></span></span></div>
<div abp="691">
</div>
<div abp="692" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="693" lang="EN-GB"><o:p abp="694"><span abp="695" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="697" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="698" style="font-family: Calibri;"><b abp="699"><span abp="700" lang="EN-GB">The recent fall in
metal prices</span></b><span abp="701" lang="EN-GB"> is attributed to falling demand from
China and to increased supply from mines that were opened to take advantage of
the sharp increase in base metal prices in the 2000s. To add to this tale of
mining woe, the dollar price of gold has fallen by 30% since its peak in 2011
and silver has fallen by 59% since it reached its peak in April 2011. The
immediate outlook for mining is not good, but taking a longer view, the
mismatch between demand and supply will work its way out, as it has in the past.
In the meantime, the major mining companies are concentrating on cost reduction
and cash conservation, which should improve profitability.</span></span></div>
<div abp="702">
</div>
<div abp="703" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="704" lang="EN-GB"><o:p abp="705"><span abp="706" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="708" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="709" lang="EN-GB"><span abp="710" style="font-family: Calibri;"><strong abp="1130">Oil prices were also
very volatile until 2011, since when they have plateaud</strong>. </span></span></div>
<div abp="712" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="713" lang="EN-GB"><o:p abp="714"><span abp="715" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="716">
</div>
<div abp="1131" class="separator" style="clear: both; text-align: center;">
<a abp="1132" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx-MB0YHlAuGzNSlvnj5Iu0eV1ubW2kaTdG2shImlqwQdzMapy6kx61xbGDxeWytTZ7xSRy5DWGCps5Vig27jGZUMXdUpKh_kNiRDF1TakoSD6AVUlqQMWGTMmS1Hz_67IIpGL0Ug-88o/s1600/Oil+price+brent+crude+Money+Week-.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1133" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx-MB0YHlAuGzNSlvnj5Iu0eV1ubW2kaTdG2shImlqwQdzMapy6kx61xbGDxeWytTZ7xSRy5DWGCps5Vig27jGZUMXdUpKh_kNiRDF1TakoSD6AVUlqQMWGTMmS1Hz_67IIpGL0Ug-88o/s1600/Oil+price+brent+crude+Money+Week-.gif" height="305" width="400" /></a></div>
<div abp="717" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<!--[if gte vml 1]><v:shape
id="Picture_x0020_7" o:spid="_x0000_i1026" type="#_x0000_t75" alt="Oil price brent crude Money Week-.gif"
style='width:361.5pt;height:276pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image008.gif"
o:title="Oil price brent crude Money Week-"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="722" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="723" style="font-family: Calibri;">Brent
Crude Oil price in $ per barrel, courtesy <i abp="724">Money Week. </i>Click to enlarge<o:p abp="725"></o:p></span></span></div>
<div abp="726">
</div>
<div abp="727" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="728" lang="EN-GB"><o:p abp="729"><span abp="730" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="732" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="733" style="font-family: Calibri;"><b abp="734"><span abp="735" lang="EN-GB">The flattening of the
oil price in the last three years</span></b><span abp="736" lang="EN-GB"> is attributed to
cheap gas from fracking in the USA counterbalanced by a determined effort by
OPEC to keep prices high by limiting output.</span></span></div>
<div abp="737">
<span abp="739" lang="EN-GB"><o:p abp="740"><span abp="741" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="742">
</div>
<div abp="743" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="744" style="font-family: Calibri;"><b abp="745"><span abp="746" lang="EN-GB">The earnings of the
oil majors</span></b><span abp="747" lang="EN-GB">, as a whole, have been hit by political,
production and environmental problems that have more than countered the
beneficial impact of high oil prices. While the immediate outlook is uncertain,
in the longer term oil demand is expected to continue its long-term upward
trend, which may sustain oil prices. Other externalities are unlikely to be so
favourable. State owned oil companies have access to cheaper oil. The
investment in difficult sources - tar sands, deep-water fields, the Arctic -
can continue to cause production and environmental problems. And while oil
companies might look to Iraq, Russia and Venezuela (with the highest proven
reserves in the world) for growth, the former two are high risk and the
government of Venezuela must first modify its rules for foreign companies. But
it would be foolish to underestimate the managers of these companies and their
know-how. Just consider how the industry has developed gas fracking or drilling
for oil in the most inhospitable places. </span></span></div>
<div abp="748">
<span abp="750" lang="EN-GB"><o:p abp="751"><span abp="752" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="753">
</div>
<div abp="754" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="755" style="font-family: Calibri;"><b abp="756"><span abp="757" lang="EN-GB">Investing in this
sector is a contrarian stance</span></b><span abp="758" lang="EN-GB">. For investors
willing to take on this risk, <b abp="759">BRCI </b>offers a reasonable home. At the present
price of 108p the shares trade at a discount of 1.8% to net asset value (NAV)
and yield 5.6%. <b abp="760">BlackRock</b> manages the discount and premium, so its share
price does not move far from NAV.</span></span></div>
<div abp="761">
</div>
<div abp="762" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="763" lang="EN-GB"><o:p abp="764"><span abp="765" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="766">
</div>
<div abp="1134" class="separator" style="clear: both; text-align: center;">
<a abp="1135" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxCVU00-BSzlXkfQpnr-XyBsj0LwFRB1TOll7cFmKNhOYklEwA1Vot_Gf9SNw_aVQ9Vv1HUWkKXmMwzoIpF8tzapqH0u_dzObogihjL5wz5ivjLjYCwpBXhWhD9WZXRrqqrr_gJBXqEC8/s1600/Blackrock+Commodities+income+IT+GetDiscountPremiumChart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1136" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxCVU00-BSzlXkfQpnr-XyBsj0LwFRB1TOll7cFmKNhOYklEwA1Vot_Gf9SNw_aVQ9Vv1HUWkKXmMwzoIpF8tzapqH0u_dzObogihjL5wz5ivjLjYCwpBXhWhD9WZXRrqqrr_gJBXqEC8/s1600/Blackrock+Commodities+income+IT+GetDiscountPremiumChart.png" height="153" width="400" /></a></div>
<div abp="767" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="768" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape
id="Picture_x0020_8" o:spid="_x0000_i1025" type="#_x0000_t75" alt="Blackrock Commodities income IT GetDiscountPremiumChart.png"
style='width:425.25pt;height:163.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image009.png"
o:title="Blackrock Commodities income IT GetDiscountPremiumChart"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
<div abp="771" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="772" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="773" style="font-family: Calibri;">BRCI
share price discount/premium. Graph courtesy Trustnet, click to enlarge.<o:p abp="774"></o:p></span></span></div>
<div abp="775">
</div>
<div abp="776" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="777" lang="EN-GB"></span> </div>
<div abp="781" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="782" style="font-family: Calibri;"><b abp="783"><span abp="784" lang="EN-GB">If BRCI continues to
increase its dividend payout by 4% a year</span></b><span abp="785" lang="EN-GB">, then at
the current price this implies a 9.8% rate of return for the investor prior to
any capital gains or losses.</span></span></div>
<div abp="781" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="782" style="font-family: Calibri;"><span abp="785" lang="EN-GB"></span></span> </div>
<div abp="786">
</div>
<div abp="791">
</div>
<div abp="792" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="793" style="font-family: Calibri;"><b abp="794"><span abp="795" lang="EN-GB"><span style="color: #990000;">The prospective
investor will consider</span></span></b><span abp="796" lang="EN-GB">:</span></span></div>
<div abp="792" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="793" style="font-family: Calibri;"><span abp="796" lang="EN-GB"></span></span> </div>
<div abp="797">
</div>
<div abp="802">
</div>
<div abp="803" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="804" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="805" style="mso-list: Ignore;"><span abp="806" style="font-family: Calibri;">1.</span><span abp="807" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="808" dir="LTR"></span><span abp="809" style="font-family: Calibri;"><b abp="810"><span abp="811" lang="EN-GB">BRCI
has a revenue reserve of 3.1 million pounds</span></b><span abp="812" lang="EN-GB"> with
which to support its dividend payout.</span></span></div>
<div abp="813">
</div>
<div abp="814" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="815" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="816" style="mso-list: Ignore;"><span abp="817" style="font-family: Calibri;">2.</span><span abp="818" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="819" dir="LTR"></span><span abp="820" style="font-family: Calibri;"><b abp="821"><span abp="822" lang="EN-GB">With
75% of its assets in non-sterling investments</span></b><span abp="823" lang="EN-GB">,
mainly the US and Canadian dollars, there is a currency risk for UK investors.
In one sense this is irrelevant, given that metal and oil prices are quoted in
US dollars.</span></span></div>
<div abp="824">
</div>
<div abp="825" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="826" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="827" style="mso-list: Ignore;"><span abp="828" style="font-family: Calibri;">3.</span><span abp="829" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="830" dir="LTR"></span><span abp="831" style="font-family: Calibri;"><b abp="832"><span abp="833" lang="EN-GB">BRCI
has a new lead manager</span></b><span abp="834" lang="EN-GB">, Olivia Ker, who is an
unknown quantity. Her assistant, Tom Holl, is ranked in the first quartile of
fund managers for each of the last three years. However, <b abp="835">BlackRock</b> works
as a team, and both managers are guided by the in-house team.</span></span></div>
<div abp="836">
</div>
<div abp="837" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="838" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="839" style="mso-list: Ignore;"><span abp="840" style="font-family: Calibri;">4.</span><span abp="841" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="842" dir="LTR"></span><span abp="843" style="font-family: Calibri;"><b abp="844"><span abp="845" lang="EN-GB">Put and
call options have been used by BRCI to bring in revenue</span></b><span abp="846" lang="EN-GB">. This is, however, an added source of risk. As is the use of debt,
which amounts to 10% of gross assets.</span></span></div>
<div abp="847">
</div>
<div abp="848" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="849" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="850" style="mso-list: Ignore;"><span abp="851" style="font-family: Calibri;">5.</span><span abp="852" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="853" dir="LTR"></span><span abp="854" style="font-family: Calibri;"><b abp="855"><span abp="856" lang="EN-GB">BlackRock</span></b><span abp="857" lang="EN-GB"> charges 1.1% to manage the fund and it claims to have a total cost
ratio of 1.4% for this fund. This is cheaper than a corresponding OEIC. No ETF
offers an exact alternative for the UK investor. There are ETFs for 'broad
basket' commodities, for just metals or just energy; and managers do make a
difference. However, t<b abp="858">he Lyxor ETF Commodities CRB TRACKER (CRBL)</b> is
worth considering for investors wishing to use a cheap tracker. It claims a net
expense ratio of 0.35%.</span></span></div>
<div abp="859">
</div>
<div abp="860" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="861" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="862" style="mso-list: Ignore;"><span abp="863" style="font-family: Calibri;">6.</span><span abp="864" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="865" dir="LTR"></span><span abp="866" style="font-family: Calibri;"><b abp="867"><span abp="868" lang="EN-GB">Directors
own shares in BRCI to the value of 250,000 pounds</span></b><span abp="869" lang="EN-GB">. <b abp="870">BlackRock</b>
does not disclose the holdings of its fund managers.</span></span></div>
<div abp="871">
</div>
<div abp="872" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="873" lang="EN-GB"><o:p abp="874"><span abp="875" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="876">
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com4tag:blogger.com,1999:blog-6123577473607160262.post-83000001805234999092014-03-17T07:01:00.000+00:002014-03-17T07:01:26.580+00:00
<br />
<h3 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #20124d;">Investment Trusts<o:p></o:p></span></h3>
<br />
<h4 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #660000;">And Schroder Oriental Income Fund Ltd (SOI)<o:p></o:p></span></h4>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq8N6IMWZyYQo-kRE0A_Xx_qBH-McNG__IdeLSjKdJRLky0Tu_1xEe1I9oIT7TKeUMubFlNoWETRsPdRfGR_o8JUs194ni7X6QxMjxwo7dI2SpQi1EcE0Hw0AvFXEofHxYv8jJ7oQLFyU/s1600/220px-Philip_Rose,_Vanity_Fair,_1881-05-14.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq8N6IMWZyYQo-kRE0A_Xx_qBH-McNG__IdeLSjKdJRLky0Tu_1xEe1I9oIT7TKeUMubFlNoWETRsPdRfGR_o8JUs194ni7X6QxMjxwo7dI2SpQi1EcE0Hw0AvFXEofHxYv8jJ7oQLFyU/s1600/220px-Philip_Rose,_Vanity_Fair,_1881-05-14.jpg" height="320" width="188" /></a></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Caricature of Sir Philip Rose, <i style="mso-bidi-font-style: normal;">Vanity Fair</i> 1881, courtesy Wikipedia.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Sir Philip Rose founded the first
investment trust in 1868</b> for investors of modest means. He called it <i style="mso-bidi-font-style: normal;">The Foreign & Colonial Government Trust</i>
and it specialised in investing in Government bonds. In 1891 it changed its
name to <i>The Foreign & Colonial Investment Trust</i> and it first started
investing in </span><span style="color: windowtext; text-decoration: none; text-underline: none;"><span style="font-family: Calibri;">equities</span></span><span style="font-family: Calibri;">
in 1925. Today it has assets of £2.6 billion. <span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Investment Trusts (ITs), whose shares are
traded on the stock market like companies,</b> have long been recognised as
appropriate vehicles for illiquid investments in assets such as property,
unlisted companies and infrastructure. <b style="mso-bidi-font-weight: normal;">Open
Ended Investment Companies (OEICs, including Unit Trusts) and Exchange Traded
Funds (ETFs), </b>where investors may withdraw funds from the underlying
assets, are not as suitable for such asset classes.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">While ETFs </b>have captured the largest
share of managed equity funds, <b style="mso-bidi-font-weight: normal;">ITs</b>
hold certain advantages for equities over both ETFs and OEICs for the
discerning investor. A major reason is that <b style="mso-bidi-font-weight: normal;">ITs</b> generally perform better than either ETFs or OEICs in equity
markets, according to an <i style="mso-bidi-font-style: normal;">Investors
Chronicle</i> article (27 July 2012). This is confirmed by performance data,
updated monthly, at </span><a href="http://www.theaic.co.uk/aic/statistics/aic-stats"><span style="color: blue; font-family: Calibri;">http://www.theaic.co.uk/aic/statistics/aic-stats</span></a></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">The following table covers 10 years'
performance to May 2012 by sector</b>.</span></div>
<br />
<div align="center">
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin: auto auto auto 4.65pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184; width: 415px;">
<tbody>
<tr style="height: 33.75pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background: black; border-color: rgb(213, 213, 190) white rgb(0, 0, 0) rgb(213, 213, 190); border-style: solid solid none; border-width: 1pt 1pt 0px; height: 33.75pt; padding: 0cm 5.4pt; width: 73pt;" width="97">
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b><span style="color: white; font-family: "Trebuchet MS","sans-serif"; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Sector<o:p></o:p></span></b></div>
</td>
<td style="background: black; border-color: rgb(213, 213, 190) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: solid solid none none; border-width: 1pt 1pt 0px 0px; height: 33.75pt; padding: 0cm 5.4pt; width: 88pt;" width="117">
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b><span style="color: white; font-family: "Trebuchet MS","sans-serif"; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Investment
trusts<o:p></o:p></span></b></div>
</td>
<td style="background: black; border-color: rgb(213, 213, 190) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: solid solid none none; border-width: 1pt 1pt 0px 0px; height: 33.75pt; padding: 0cm 5.4pt; width: 71pt;" width="95">
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b><span style="color: white; font-family: "Trebuchet MS","sans-serif"; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Oeics/Unit
trusts<o:p></o:p></span></b></div>
</td>
<td style="background: black; border-color: rgb(213, 213, 190) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: solid solid none none; border-width: 1pt 1pt 0px 0px; height: 33.75pt; padding: 0cm 5.4pt; width: 79pt;" width="105">
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b><span style="color: white; font-family: "Trebuchet MS","sans-serif"; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Benchmark<o:p></o:p></span></b></div>
</td>
</tr>
<tr style="height: 16.5pt; mso-yfti-irow: 1;">
<td style="background: white; border: 1pt solid rgb(213, 213, 190); height: 16.5pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Global<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(213, 213, 190) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">174.1<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(213, 213, 190) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">140.2<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(213, 213, 190) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">148.4<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 27.75pt; mso-yfti-irow: 2;">
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1pt; height: 27.75pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Global equity income<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">187.3<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">NA<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">148.4<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 27.75pt; mso-yfti-irow: 3;">
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1pt; height: 27.75pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">UK equity income<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">165.2<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">146.8<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">144.1<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 16.5pt; mso-yfti-irow: 4;">
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1pt; height: 16.5pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">UK<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">178.3<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">150<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">158.1<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 16.5pt; mso-yfti-irow: 5;">
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1pt; height: 16.5pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">North America<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">139.1<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">122.6<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">142.6<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 16.5pt; mso-yfti-irow: 6;">
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1pt; height: 16.5pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Europe ex UK<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">173.2<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">143.4<o:p></o:p></span></div>
</td>
<td style="background: rgb(231, 231, 212); border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">147.2<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 41.25pt; mso-yfti-irow: 7;">
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1pt; height: 41.25pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Global emerging markets<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 41.25pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">398.9<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 41.25pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">298.7<o:p></o:p></span></div>
</td>
<td style="background: white; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 41.25pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">325.6<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 27.75pt; mso-yfti-irow: 8; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190); border-style: none solid solid; border-width: 0px 1pt 1.5pt; height: 27.75pt; padding: 0cm 5.4pt; width: 73pt;" valign="bottom" width="97">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Asia Pacific ex Japan<o:p></o:p></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1.5pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 88pt;" valign="bottom" width="117">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">286.7<o:p></o:p></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1.5pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 71pt;" valign="bottom" width="95">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">247.1<o:p></o:p></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) rgb(213, 213, 190) rgb(213, 213, 190) rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1.5pt 0px; height: 27.75pt; padding: 0cm 5.4pt; width: 79pt;" valign="bottom" width="105">
<div align="right" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: right;">
<span style="color: black; font-family: "Trebuchet MS","sans-serif"; font-size: 8pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">282.2<o:p></o:p></span></div>
</td>
</tr>
</tbody></table>
</div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Source<i style="mso-bidi-font-style: normal;">: Investors Chronicle</i> 27 July 2012.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span><b style="mso-bidi-font-weight: normal;">ITs</b>
perform better than OEICs and ETFs for equity investors because:</span></div>
<br />
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">The fees
and expenses</b> incurred by <b style="mso-bidi-font-weight: normal;">ITs</b> are
substantially lower than those charged by OEICs, though they are somewhat higher
than ETFs.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">IT
managers can leverage their gains with borrowed funds</b>.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">IT
managers follow long-term investment strategies, </b>knowing that funds cannot
be withdrawn from their portfolios. Managers of OEICs feel constrained by
quarterly reporting and the fear that funds will be withdrawn if they perform
below their benchmarks. As a result, OEICs sometimes become high cost index
trackers.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">ITs are
never forced to buy or sell in their chosen markets</b>. OEICs and ETFs are
forced to do so as investors buy or sell their units. The ebb and flow of funds
also increases the trading costs of OIECs and EFTs. </span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">The price
of OEICs and EFTs is linked</b> exactly to the underlying fund's net asset value.
Meanwhile <b style="mso-bidi-font-weight: normal;">ITs</b> trade at a discount or
premium to net asset value. This enables <b style="mso-bidi-font-weight: normal;">ITs</b>
to buy back their shares when they trade at a discount and to sell them when
they trade at a premium to net asset value (NAV).</span></div>
<br />
<div class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">On
average, IT managers add 'alpha'</b> - they do better than their benchmarks.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Investment Trust investors will note that</b>:</span></div>
<br />
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">1.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;">The first step is to chose a theme - growth or
income, geographical region, asset class etc. - and then review the available <b style="mso-bidi-font-weight: normal;">ITs </b>listed at Morningstar or similar
websites. </span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">2.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">The
opportunity of buying assets at a discount to NAV should not be ignored</b>. But
there is usually a good reason for a high discount. <span style="mso-bidi-font-weight: bold;">INVISTA EUROPEAN REAL ESTATE IT trades at an 87% discount to NAV, but its
borrowings are almost 6 times the value of assets and it is capitalised at only
£7 million pounds. This is only for speculative investors. Evidently buying
into an <b>IT</b> at a premium to NAV is best avoided, unless the investor has
a compelling reason to do so.</span></span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">3.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Unlike
OEICs, ITs provide considerable information</b> on their finances and
investment strategies. This helps investors to find a manager who shares their
investment criteria. </span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">4.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;">As in any investment, it is a positive sign when
managers own a substantial stake in their companies.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">5.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">While
most ITs do not gear their investments by more than 10 to 15%, some do</b>.
This adds an element of risk, which in a downturn could hit the value of its
shares.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l3 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">6.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Small ITs</b>,
say with a free float of less than £50 million, are best avoided. Their shares
can become illiquid and their bid to offer spread widen in a selloff.</span></div>
<br />
<div align="center" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; text-align: center;">
<span style="font-family: Calibri;">-----------------------------------------------------------------------------------------</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<o:p><span style="font-family: Calibri;"> </span></o:p></div>
<br />
<h3 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #660000;">Schroder Oriental Income Fund Ltd (SOI)<o:p></o:p></span></h3>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgL650rB30QJNG80Krsi8He9QhIgDhQ5PWM427DIzbVvXOuivda3I1mvJXWkHBNGLjkJ3-xYuNHU8aZBL4b5DQcElAaDUpOonNYd-eWtcbEbu8LN2s3cjfU6AOMIi6D5ilO7SJnZpJdkZU/s1600/800px-Sydney_Airport_Terminal_One_Airside.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgL650rB30QJNG80Krsi8He9QhIgDhQ5PWM427DIzbVvXOuivda3I1mvJXWkHBNGLjkJ3-xYuNHU8aZBL4b5DQcElAaDUpOonNYd-eWtcbEbu8LN2s3cjfU6AOMIi6D5ilO7SJnZpJdkZU/s1600/800px-Sydney_Airport_Terminal_One_Airside.jpg" height="240" width="320" /></a></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Sydney International Airport,
courtesy Wikipedia<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">After a year when equities in </b>the Asia
Pacific region (excluding Japan) have recorded a net loss, compared to the
substantial gains in the developed markets of the USA, Japan and Europe, it
does not take much of a contrarian to take an interest in this region of the
globe. When regions or asset classes are out of favour, the share price of
investment trusts specialising in these areas often move to a discount. This is
the case with <b style="mso-bidi-font-weight: normal;">Schroder Oriental Income
Fund Ltd (SOI), </b>which currently trades at a 5% discount to net asset value
(NAV)<b style="mso-bidi-font-weight: normal;">.<o:p></o:p></b></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAFFCdmJp7eZ933T4KumYQoqDv2Vz0779IAuF7dSW8i2-iLJ7MDpOZQr1zHmj_GQYctIFFIjdVNNAk6M5gZFy0iTxsbfYGz8WP9G7iDZgNDBq1AGoyZR0cp02vfBI1s0sEcPQWqVSHy9g/s1600/SOI+Premium+Discount+to+net+NAV.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhAFFCdmJp7eZ933T4KumYQoqDv2Vz0779IAuF7dSW8i2-iLJ7MDpOZQr1zHmj_GQYctIFFIjdVNNAk6M5gZFy0iTxsbfYGz8WP9G7iDZgNDBq1AGoyZR0cp02vfBI1s0sEcPQWqVSHy9g/s1600/SOI+Premium+Discount+to+net+NAV.png" height="137" width="400" /></a></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;"><span style="mso-no-proof: yes;"><v:shape alt="SOI Premium Discount to net NAV.png" id="_x0032__x0020_Imagen" o:spid="_x0000_i1025" style="height: 156.75pt; mso-wrap-style: square; visibility: visible; width: 451.5pt;" type="#_x0000_t75">
<v:imagedata o:title="SOI Premium Discount to net NAV" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></v:shape></span><o:p></o:p></span></b></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;"><span style="font-size: 10pt; line-height: 115%;">SOI</span></b><span style="font-size: 10pt; line-height: 115%;"> Share price premium/discount to Net
Asset Value, courtesy <i style="mso-bidi-font-style: normal;">Investors Chronicle</i>,
click to enlarge<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">SOI </b>was founded in July 2005 to "provide
a total return for investors primarily through investments in equities and
equity-related investments, of companies which are based in, or which derive a
significant proportion of their revenues from, the Asia Pacific region and
which offer attractive yields." (Company factsheet). </span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">SOI has consistently beaten its benchmark</b>,
the MSCI Asia Pacific ex Japan Index:</span></div>
<br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background-color: transparent; border: 1pt solid black; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; padding: 0cm 5.4pt; width: 161.35pt;" valign="top" width="215">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;">Annualised Returns %</span></div>
</td>
<td style="background-color: transparent; border-color: black black black rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">1 YEAR</span></div>
</td>
<td style="background-color: transparent; border-color: black black black rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">3 YEAR p.a.</span></div>
</td>
<td style="background-color: transparent; border-color: black black black rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt; width: 73.65pt;" valign="top" width="98">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">5 YEAR p.a.</span></div>
</td>
<td style="background-color: transparent; border-color: black black black rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-themecolor: text1; padding: 0cm 5.4pt; width: 82.3pt;" valign="top" width="110">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">Since 2005 p.a.</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 1;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 161.35pt;" valign="top" width="215">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;">SOI - Net Asset
Value</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">-6.7%</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">7.6%</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 73.65pt;" valign="top" width="98">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">22.4%</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 82.3pt;" valign="top" width="110">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">11.2%</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid black .5pt; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 161.35pt;" valign="top" width="215">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;">MSCI Asia Pacific
ex-Japan<span style="mso-spacerun: yes;"> </span>GBP</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 63.8pt;" valign="top" width="85">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">-7.0%</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">0.8%</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 73.65pt;" valign="top" width="98">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">15.2%</span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) black black rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid black .5pt; mso-border-bottom-themecolor: text1; mso-border-left-alt: solid black .5pt; mso-border-left-themecolor: text1; mso-border-right-themecolor: text1; mso-border-themecolor: text1; mso-border-top-alt: solid black .5pt; mso-border-top-themecolor: text1; padding: 0cm 5.4pt; width: 82.3pt;" valign="top" width="110">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;">9.6%</span></div>
</td>
</tr>
</tbody></table>
<o:p><span style="font-family: Calibri;"> </span></o:p><br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Matthew Dobbs has managed SOI since its
launch in 2005</b>. According to FE Trustnet, he has outperformed his <span style="mso-spacerun: yes;"> </span>peer group of managers by 77% in the past 10
years. <span style="mso-spacerun: yes;"> </span><b style="mso-bidi-font-weight: normal;">SOI</b> has 68% of its funds invested in Australia, Singapore,
Hong-Kong and Taiwan, with the remainder invested in China, South Korea,
Thailand, New Zealand, Indonesia and the Philippines. Larger investments
include Fortune Real Estate (Hong Kong), Taiwan Semiconductor, Sydney Airport,
China Petroleum and Chemical and HSBC. The total number of holding is 72, which
is not large for an IT with £400 million invested.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">At its current price of 164p, SOI yields 4.5%</b>
and it is on a price earnings ratio (based solely<span style="mso-spacerun: yes;"> </span>on revenue) of 19. The <b style="mso-bidi-font-weight: normal;">IT</b> has a net gearing of just 3.3%. Seven institutional investors
each own more than 3% of the fund's shares.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">SOI has a good trading record. Consider</b>:</span></div>
<br />
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">1.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Revenue
earnings per share (excluding capital gains and losses) and dividends</b> have
grown by 7% cumulatively per annum since 2007.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">2.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">SOI has
returned a total gain on NAV of 148</b>% since launch, 30% better than the
benchmark return of 118% over the same period.</span></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">3.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Total
charges amount to 0.93% per annum</b>, about half the charges of a comparable OEIC.</span></div>
<br />
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">4.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">The fund
issues or buys back shares</b> to ensure that its share price does not move far
from its NAV. By selling when the share price moves to a premium and by buying
when it falls to a discount, shareholder returns are improved.</span></div>
<br />
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">5.</span><span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">The lead manager</b>, from Schroder Investment
Management, has been with the IT since its launch. Continuity, with a good
performing IT, is important.</span></div>
<br />
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<span style="mso-spacerun: yes;"><span style="font-family: Calibri;"> </span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Using
the dividend discount model</b>, <b style="mso-bidi-font-weight: normal;">SOI</b>
would be valued at between 160p (discounting at 12%) and 260p (discounting at
10%), which compares to its current share price of 164p. This assumes that
dividends continue to increase by 7% per annum indefinitely, though values
beyond 20 years become tiny. </span></div>
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</div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Main
risks are</b>:</span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<o:p><span style="font-family: Calibri;"> </span></o:p></div>
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: Calibri;">The
fund is highly dependent on what happens in China. Chinese gross public debt to
GDP is estimated at 200% and for the first time public bodies have been allowed
to default on their debts. Political risks in the region, both in North Korea
and with Chinese claims in the East and South China Seas, are a concern.</span></div>
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<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l1 level1 lfo4; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;">The fund invests in a wide range of currencies,
none of which are tied to sterling.</span></div>
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<!--[if !supportLists]--><span style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: Calibri;">There
is fear among investors that we may be on the brink of a financial crisis in
the region.</span></div>
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<o:p><span style="font-family: Calibri;"> </span></o:p></div>
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<o:p><span style="font-family: Calibri;"> </span></o:p></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;"><span style="color: #990000;">Note:
the next article will appear around 5 April.<o:p></o:p></span></span></b></div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com2tag:blogger.com,1999:blog-6123577473607160262.post-53641526425397873162014-03-09T07:42:00.000+00:002014-03-10T20:40:32.610+00:00<br />
<h3 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #20124d;"><span style="background-color: white;">The Star
Stockpicker<o:p></o:p></span></span></h3>
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<div class="separator" style="clear: both; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNwWi5ipwK1gdrJqlQ7vh5LJg8UlIdJs_U8gzQ9GrPO6DuzVyxIgVdMkDVIyF5Q9XMrzzBVijIKmvS9_68SJzqlJtzTgGLC_g2PACTR0R-rf3AfbKFRp5JlCgMJ21CQDOXWdLwwhm8CnM/s1600/benjamin-graham-entreprising-investor-screen.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNwWi5ipwK1gdrJqlQ7vh5LJg8UlIdJs_U8gzQ9GrPO6DuzVyxIgVdMkDVIyF5Q9XMrzzBVijIKmvS9_68SJzqlJtzTgGLC_g2PACTR0R-rf3AfbKFRp5JlCgMJ21CQDOXWdLwwhm8CnM/s1600/benjamin-graham-entreprising-investor-screen.jpg" height="320" width="235" /></a></span></b></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Benjamin Graham, courtesy Stokopedia<o:p></o:p></span></span></div>
<br />
<h4 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #660000;">And Pearson PLC<o:p></o:p></span></h4>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>Very
few investors are consistently good stockpickers</b>. Star stockpickers have
the drive, dedication, technical skills and a gift that seems magical for
finding stocks that are undervalued by the market. Normally these gifted people
are found exclusively in fund management companies and the like. Only very few
are known outside their industry. Even <b>Benjamin Graham,</b> whose <i>Security
Analysis</i> (1934) was the first book to make investing a discipline, is
barely known outside financial circles. </span></div>
<br />
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<span style="font-family: Calibri;"><b>It
is very rare to come across a star stockpicker who is a full-time financial
journalist</b>. For 15 years <b>Simon Thompson</b> has written a weekly column
and more frequent online articles for the <i>Investors Chronicle</i>. For
example, between 30 September 2012 and 30 September 2013 <b>Mr Thompson</b>
tipped 60 shares listed on the London Stock Exchange. Taking the results of his
tips to 2 October 2013, the average return on his buy recommendations yielded a
profit of 22.5% compared to 4.5% for the FTSE All Share Index, which I use as a
benchmark. On an annualised basis, the return on Mr Thompson's tips would have been about 45%.* Only 16 of the 60 shares he recommended subsequently performed
worse than this benchmark. This success rate of 3:1 is remarkable. </span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>How
does Mr Thompson do it?</b> He concentrates on a segment of the market, small
cap shares often listed on the Alternative Investment Market (AIM), which is
ignored by most analysts. He has a watch list of over 200 companies. Mr Thompson
follows Graham's balance sheet analysis to uncover undervalued assets and to
identify companies whose assets are well in excess of the company's market
value. He uses a diverse range of indicators, such as director purchases,
forward earnings expectations, the previous record of managers and major
shareholders, positive news flow on the company and its market and technical
indicators. He has published his investing ideas in two books. </span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>Even
if one emulated Mr Thompson's techniques</b>, the time and energy he dedicates
to stockpicking is beyond the capacity of most individual investors. And the
individual investor is extremely unlikely to share his magical gift for
ferreting out undervalued shares. The simplest way to benefit from <b>Mr
Thompson's</b> gift would be to buy the online version of the magazine where he
is published and to follow his advice. <b>Mr Thompson's</b> column cites the
buying price on the eve of the online publication date and his target price for
that stock.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b><span style="font-family: Calibri;">However,
this is not as straightforward as it seems at first sight. Consider:<o:p></o:p></span></b></div>
<br />
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;">Given that a certain proportion of his tips will
not perform well, one in four of those in the year cited above, it is wise to
buy them all. But who has the funds to buy sixty stocks in a single year?
Investors must make a choice based on timing and the availability of funds.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;">Market makers read <b>Mr Thompson's</b> column
and increase the offer price of the shares he tips at the start of the trading day.
Then many other readers of his column buy the stock in the first hours of
trading. The result is that, in five of his tips that I have taken at random,
they have racked up an average gain of 11.2% in the first day of trading
following his column. The gain sometimes occurs within two hours of the opening
bell. If the offer price rises by 10 or 20% in the first hours of trading, then
it is wise to wait for the price to drop or to skip that stock entirely. </span></div>
<br />
<div class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b>Mr Thompson</b> gives up to seven updates on
a stock in a year and he also operates a stop-loss for when shares have dropped
below a certain level. Investors reap the best results from his column when
they tune in daily. Many people will find this impossible. The use of
stop-losses, ratcheted up if the share price rises, is one way of dealing with
this issue.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>Once
a year, in the month of February, Mr Thompson publishes his 'Bargain Portfolio'</b>
for the year. Eight to twelve stocks are selected using Benjamin Graham's
asset-based model. <b>Mr Thompson </b>writes, <i>"He believed that a
bargain share is one where net current assets less all prior obligations
exceeds the market value of the company by at least 50 per cent. Mr Graham's
theory was that a strong balance sheet will usually see a company through any
short-term difficulties; he called it his "margin for safety".</i> As
the number of companies that can meet this strict criterion have declined, <b>Mr
Thompson</b> has relaxed this criterion.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">One
might think that the simpler way to gain from <b>Mr Thompson's</b> research is
to buy into his Bargain Portfolio once every year in February, sell it a year
later and then reinvest the proceeds. However, the Bargain Portfolio does not
produce the same stellar results as his individual share recommendations.</span></div>
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<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin: auto auto auto 3.05pt; mso-padding-alt: 0cm 3.5pt 0cm 3.5pt; mso-yfti-tbllook: 1184; width: 428px;">
<tbody>
<tr style="height: 27.75pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="background: rgb(79, 129, 189); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1.5pt 0px; height: 27.75pt; mso-border-bottom-alt: solid white 1.5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: white; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">Year<o:p></o:p></span></span></b></div>
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</td><td nowrap="" style="background: rgb(79, 129, 189); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1.5pt 0px; height: 27.75pt; mso-border-bottom-alt: solid white 1.5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
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<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: white; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">Bargain portfolio<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(79, 129, 189); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1.5pt 0px; height: 27.75pt; mso-border-bottom-alt: solid white 1.5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: white; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">FTSE ALL SHARE Index<o:p></o:p></span></span></b></div>
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</div>
</td><td nowrap="" style="background: rgb(79, 129, 189); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1.5pt; height: 27.75pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: white; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">Difference<o:p></o:p></span></span></b></div>
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<tr style="height: 16.5pt; mso-yfti-irow: 1;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">1 year performance %<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 16.5pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">1 year performance %<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 16.5pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 2;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">1999<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">59,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">24,2<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">34,8<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 3;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2000<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">28,1<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-5,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">34,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 4;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2001<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2,5<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-13,3<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">15,8<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 5;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2002<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-29,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-22,7<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-6,3<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 6;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2003<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">146,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">20,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">125,1<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 7;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2004<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">17,1<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">12,8<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">4,3<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 8;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2005<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">50,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">22,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">28,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 9;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2006<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">16,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">16,8<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">0,1<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 10;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2007<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">0,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">5,3<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-4,4<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 11;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2008<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-60,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-29,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-31,0<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 12;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2009<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">53,4<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">30,1<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">23,3<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 13;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2010<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">46,1<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">14,5<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">31,6<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 14;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2011<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-18,4<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-3,5<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">-14,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 15;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2012<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">31,9<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">12,3<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">19,6<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 16;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2013<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">36,4<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">20,8<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">15,6<o:p></o:p></span></span></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15pt; mso-yfti-irow: 17;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">Compound return %<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15pt; mso-yfti-irow: 18;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">1999 to 2013<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">16,4<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">6,3<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">10,1<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15.75pt; mso-yfti-irow: 19;"><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">Compound return %<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) white white rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(184, 204, 228); border-color: rgb(0, 0, 0) rgb(0, 0, 0) white; border-style: none none solid; border-width: 0px 0px 1pt; height: 15.75pt; mso-border-bottom-alt: solid white .5pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15pt; mso-yfti-irow: 20;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: none solid none none; border-width: 0px 1pt 0px 0px; height: 15pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">2004 to 2013<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: none solid none none; border-width: 0px 1pt 0px 0px; height: 15pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">10,3<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: none solid none none; border-width: 0px 1pt 0px 0px; height: 15pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 89pt;" valign="bottom" width="119"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">8,90<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border: rgb(0, 0, 0); height: 15pt; padding: 0cm 3.5pt; width: 53pt;" valign="bottom" width="71"><div style="text-align: left;">
</div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: left;">
<b><span style="color: black; font-size: 8pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><span style="font-family: Calibri;">1,40<o:p></o:p></span></span></b></div>
<div style="text-align: left;">
</div>
</td></tr>
<tr style="height: 15pt; mso-yfti-irow: 21; mso-yfti-lastrow: yes;"><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: none solid none none; border-width: 0px 1pt 0px 0px; height: 15pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 84pt;" valign="bottom" width="112"><div style="text-align: left;">
</div>
</td><td nowrap="" style="background: rgb(219, 229, 241); border-color: rgb(0, 0, 0) white rgb(0, 0, 0) rgb(0, 0, 0); border-style: none solid none none; border-width: 0px 1pt 0px 0px; height: 15pt; mso-border-right-alt: solid white .5pt; padding: 0cm 3.5pt; width: 95pt;" valign="bottom" width="127"><div style="text-align: left;">
</div>
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<br />
<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Source: <i>The
Investors Chronicle</i><o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">While
the compound return of this portfolio over the past 15 years excels, the return
over the last ten years has only outperformed the benchmark by 1.4% per annum
compounded. I write 'only' because, as with <b>Mr Thompson's</b> other tips,
the stocks in the bargain portfolio suffer gains on publication and this will
reduce future returns. <b>Mr Thompson</b> writes:</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<i><span style="font-family: Calibri;">"It’s
fair to say that my 2014 Bargain share portfolio has generated a huge amount of
interest. Not only has website traffic from online subscribers been off the
Richter scale, but the weight of money buying into the share recommendations
has led to some significant price movements and that’s after factoring in the
mark-up in the offer prices by market makers before the market opened on
Friday, 7 February."<o:p></o:p></span></i></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>Given
the instantaneous market reaction to Mr Thompson's tips</b>, it would have been
difficult for a regular investor to improve on a low-cost tracker of the FTSE
All Share Index by investing only in the Bargain Portfolio in the last ten
years (2004-2013).<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>The
reasons why stocks in the Bargain Portfolio do not perform as well as Mr
Thompson's regular tips may be because</b>:</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">1.<span style="mso-spacerun: yes;"> </span><b>His selection criteria</b> for his regular
tips include many more factors than for the Bargain Portfolio. Consequently, it
is much easier for other analysts to run the same stock screen he uses for the
Bargain Portfolio, thereby limiting the expected gains.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">2. <b>He
must create a portfolio</b> of stocks for the Bargain Portfolio for a fixed
publication date. Inevitably some will seem better than others when publication
day comes around.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">3. <b>He
does not set target prices</b> for stocks in the Bargain Portfolio which are
intended to be held for at least a year. Sometimes, he argues, you need to hold
on to a share for years before its true value is realised. On the other hand, his
regular tips are often special situations, where an outcome with an expected
value is anticipated in a shorter period of time. In theory special situations
should be riskier than the longer calls, but in practice this is not the case.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>Mr
Thompson offers good advice</b>. Don't chase prices that rise sharply on
publication day, as the froth will probably settle and the share price will
fall back. He notes that stocks he has just identified as being undervalued
rise further than subsequent upgrades of the same stock. And when the stock
market crashes, as in 2008, hold onto the paper; stocks with good asset backing
will recover.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b><span style="font-family: Calibri;">The
seasoned investor will note:<o:p></o:p></span></b></div>
<br />
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b>Mr Thompson's recommendations</b> work best
in a bull market. They will lose value in a bear market. Investors must
consider what proportion of their assets they wish to place in his hands.</span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span style="font-family: Calibri;"><b>The short time horizon</b> for buying and
selling special situations may excite some investors but it will jar with other
investors. There is no time to do your own analysis. These stocks are bought
for quick capital gain and not long-term income.</span><o:p><span style="font-family: Calibri;"> </span></o:p></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">*
The figures for <b>Mr Thompson's</b> share price performance are taken from the
2 October 2013 edition of the <i>Investors Chronicle</i>. He measures
performance based on buying at the offer price and selling at the bid price. I
have used only the first time he has tipped a stock, thereby excluding
subsequent recommendations for the same stock. </span></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="font-family: Calibri;">----------------------------------------------------------------------------------------------</span></div>
<br />
<h3 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #660000;">Pearson PLC<o:p></o:p></span></h3>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1oKgeuqjGzNup6EDz55bs994OoPbk3HRKmMOTgEHnQJCBmj0vLkzRYw_4qQT5EXR3dtmKVymPEFrvDgiTU9sMQrvYf8M65_HV7judHHhtf8igMK7tEeCaH_Ddg-5b_dj1exMHyQQRR3k/s1600/220px-Amazon_Kindle_3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1oKgeuqjGzNup6EDz55bs994OoPbk3HRKmMOTgEHnQJCBmj0vLkzRYw_4qQT5EXR3dtmKVymPEFrvDgiTU9sMQrvYf8M65_HV7judHHhtf8igMK7tEeCaH_Ddg-5b_dj1exMHyQQRR3k/s1600/220px-Amazon_Kindle_3.jpg" height="320" width="216" /></a></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;"><span style="mso-bidi-language: AR-SA; mso-fareast-language: EN-GB; mso-no-proof: yes;"><v:shape alt="220px-Amazon_Kindle_3.jpg" id="_x0032__x0020_Imagen" o:spid="_x0000_i1026" style="height: 139.5pt; mso-wrap-style: square; visibility: visible; width: 94.5pt;" type="#_x0000_t75"><v:imagedata o:title="220px-Amazon_Kindle_3" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.jpg"></v:imagedata></v:shape></span></span></b><br /></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><span style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">An eBook reader, the Kindle<o:p></o:p></span></span></b></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><o:p><span style="font-family: Calibri;"> </span></o:p></b></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b><span style="font-family: Calibri;">The
<i style="mso-bidi-font-style: normal;">Investors Chronicle</i>, where Mr.
Thompson writes, is owned by Pearson PLC.<o:p></o:p></span></b></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b>Pearson
is the largest education company in the world.</b> It also owns the <i>Financial
Times,</i> 50% of <i>The Economist, </i><span style="mso-bidi-font-style: italic;">and
47% of Penguin Random House,</span> which is the largest book publisher in the
world. </span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">74%
of the company's operating profit in 2013 came from its educational division. <b><span lang="EN-US" style="mso-ansi-language: EN-US;">Pearson</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;"> provides learning materials, technologies,
assessments and services to teachers and students of all ages. The company
concentrated on schools, higher education, English Language learning and
business education.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">74% of operating profits in 2012 came
from its operations in North America. <b>Pearson</b> depends more on the
American market than most large American companies do. Fifteen percent of its
revenues come from emerging markets - primarily China, India, Brazil, Mexico,
South Africa and the Middle East - which are, overall, growing strongly.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">Pearson's</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;"> traditional educational and
publication businesses face competition from the internet and eBooks. The
company has a strategy to deal with this unpleasant reality:<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">1. It aims to extend its business to
emerging markets. They currently account for 15% of its sales.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">2. It
has moved from print to digital learning, which now counts for one-third of its
sales.<span lang="EN-US" style="mso-ansi-language: EN-US;"><o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">3. It plans to move away from
textbook publishing.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">In 2012, <b>Pearson</b> acquired
three companies in the online and digital fields. Pearson paid $650 million for
the largest, <b style="mso-bidi-font-weight: normal;">EmbanetCompass</b>, at the
exalted valuation of 5 times sales. In 2014 it paid £435 million for the
Brazilian <b style="mso-bidi-font-weight: normal;">Grupo Multi</b>, the largest
English Language trainer in the country, at 11 times operating profits. This
acquisition is said to be slightly earnings enhancing. <o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">After several years of good trading,
Pearson</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;"> has
suffered from adverse trading conditions in its core markets (the US, the UK
and Australia) to add to the challenge of eBooks replacing printed books. This
has been the result of fewer students, new curriculums and a cutback in state
funding. <b style="mso-bidi-font-weight: normal;">The new CEO warned that 2013
would be worse than 2012 and so it has proved: <o:p></o:p></b></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">1. <b>Earnings per share, </b><span style="mso-bidi-font-weight: bold;">once adjusted for discontinued</span> operations
and a swathe of costs (mainly currency translation losses and acquisition
expenses), has declined by 15% in 2013 and the Company projects a further fall
of around 8% in 2014. Thereafter, management expects earnings to improve.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">2. <b>Return on equity</b> (ROE) once
averaged 15%, but has fallen to an (adjusted)<span style="mso-spacerun: yes;">
</span>10% in 2013. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">3. <b>Net debt to equity,</b> a
modest 16% in 2012, has jumped to 26% in 2013. <b>Moody's gives Pearson a Baa1</b>
credit rating for long-term debt, but in January 2014 it announced that it was putting
the company's credit rating on negative outlook.<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;"><o:p></o:p></i></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">4. <b>Free cash flow declined to </b><span style="mso-bidi-font-weight: bold;">£238 million in 2013, after capital
expenditure, well below the £372 million paid in dividends. As a show
of confidence in the future, the Company has announced an increase of 7% in its
dividend for 2014 though this is unlikely to be covered by free cash flow. This
will most likely require further borrowings.<o:p></o:p></span></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Pearson's share price (in blue),</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;"> which usually follows the Dow Jones Index (in
green) these last five years, has fallen by almost 50% compared to this
benchmark in the past year:<o:p></o:p></span></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzszgrsMoQcKMp1d0GJDcqQ6Y3r4jn1LPorO2lM6I3YHnNxSqwmfpkdkmLs5ELiQRiRbUBqssdLi_c3J4eUcd-GdsiZjEh95aI_NN4eN_CodcwRoQDbAMkSGUNv24Zcs1RuBpcGtbWE2k/s1600/Pearson+Vs+Dow+Jones+I+Yahoo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzszgrsMoQcKMp1d0GJDcqQ6Y3r4jn1LPorO2lM6I3YHnNxSqwmfpkdkmLs5ELiQRiRbUBqssdLi_c3J4eUcd-GdsiZjEh95aI_NN4eN_CodcwRoQDbAMkSGUNv24Zcs1RuBpcGtbWE2k/s1600/Pearson+Vs+Dow+Jones+I+Yahoo.png" height="175" width="400" /></a></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><span style="mso-bidi-language: AR-SA; mso-fareast-language: EN-GB; mso-no-proof: yes;"><v:shape alt="Pearson Vs Dow Jones I Yahoo.png" id="_x0030__x0020_Imagen" o:spid="_x0000_i1025" style="height: 186pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75">
<v:imagedata o:title="Pearson Vs Dow Jones I Yahoo" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></v:shape></span></span></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span style="font-family: Calibri;">Courtesy Yahoo,
click to enlarge<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">At the current share price of 1003p,
<b>Pearson is on a forward (adjusted) PE of 15 and yields a prospective 4.8%.</b>
</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">My valuation model for the years 2014-18 gives a <b>value of just over
900p for Pearson</b>. The basic assumption is that the company hits the low
range of its earnings projection of 62p a share for 2014 and then increases
earnings by 3% per annum thereafter to 2018. If management achieve what they
set out to do, this is a conservative valuation.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;"><span style="color: #990000;">But what are Pearson's prospects?</span></span></span></b></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US;"><o:p><span style="font-family: Calibri;"> </span></o:p></span></b></div>
<br />
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">John Fallon, Pearson's
CEO is optimistic (from the 2013 results presentation): </span></span></b></div>
<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none;">
<span style="color: black; font-family: "Verdana","sans-serif"; font-size: 9.5pt; mso-bidi-font-family: Verdana; mso-bidi-language: AR-SA;"><o:p> </o:p></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none; text-align: justify;">
<i><span style="color: #222222; font-size: 10pt; mso-bidi-font-family: Verdana-Italic; mso-bidi-language: AR-SA;"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span>"We are in the middle of what we believe
will be a short, but difficult, transition – one that through our combined
investment and restructuring programs will drive a leaner, more cash
generative, faster growing business from 2015.<o:p></o:p></span></span></i></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none; text-align: justify;">
<span style="font-family: Calibri;"><i><span style="color: #222222; font-size: 10pt; mso-bidi-font-family: Verdana-Italic; mso-bidi-language: AR-SA;"><span style="mso-spacerun: yes;"> </span>We are uniquely positioned to tackle some of
the biggest challenges in global education including the transforming power of
technology. I am particularly excited about the significant opportunity digital
education offers for Pearson and the next generation of learners.”</span></i></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; mso-layout-grid-align: none; text-align: justify;">
<span style="font-family: Calibri;"><i><span style="color: #222222; font-size: 10pt; mso-bidi-font-family: Verdana-Italic; mso-bidi-language: AR-SA;"></span></i></span><span lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">There is evidence to support his
optimism: </span></span></b></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<br />
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Wingdings; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: Calibri;"><b><span lang="EN-US" style="mso-ansi-language: EN-US;">The global education market</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;"> has grown by 75% in the 7 years
since 2005 and it is forecast, by <b>Ibis Capital</b>, to grow by a further 43%
in the next 5 years. World E-learning expenditure is expected to grow by 23%
p.a. through to 2017. <b>This bodes well for Pearson's E-learning business</b>.
However the rate of decline of its traditional print business will offset these
gains, but by how much is difficult to judge from the information we have on
the company's operations.<o:p></o:p></span></span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Wingdings; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US" style="mso-ansi-language: EN-US;">Pearson, with $7 billion in education related revenues in 2012,</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;"> is the largest company in this
market in the world. Its next largest competitor, Apollo Group, had $4.5
billion in revenues. Pearson claims, with some justification, to have an
excellent offer in education. For example, it has joint projects with over 200
colleges in the USA.<o:p></o:p></span></span></div>
<br />
<div class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Wingdings; mso-ansi-language: EN-US; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span style="mso-list: Ignore;">Ø<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">The rest of the business -
professional educational business (training, testing and certification of
professionals), the Financial Times Group and Penguin Random House - is
improving at a stately pace.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<o:p><span style="font-family: Calibri;"> </span></o:p></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><span style="color: #990000;"><b>Investors
will note that Pearson</b> <b style="mso-bidi-font-weight: normal;">faces more
uncertainties than many other businesses</b></span>:</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">1.
The 16-year reign of <b>Pearson's</b> outstanding CEO, Marjorie Scardino came
to an end in 2012. Her successor has promised to speed up the changes in the
organization, but to the outsider this is mainly visible for its corporate
activity, the buying and selling of businesses.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">2. <b>The
traditional print-based business is declining</b> and while <b>Pearson</b> has
moved to digital and online, these are markets where the company encounters new
competitors.</span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">3. <b style="mso-bidi-font-weight: normal;">In school and higher education Pearson</b>
is often in competition with the state, or at least it is dependent on government
funding.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;">4. <b>If
the recent acquisition of EmbanetCompass</b><b><span lang="EN-US" style="mso-ansi-language: EN-US;"> is a sign of things to come</span></b><span lang="EN-US" style="mso-ansi-language: EN-US;">, <b>Pearson</b> will be paying a
high price to gain expertise in its 'new' markets. It is in this context that
it is worrying that management excludes goodwill amortization - effectively the
cost of acquisitions - from their performance.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">5. <b style="mso-bidi-font-weight: normal;">Three d<span style="mso-bidi-font-weight: bold;">irectors have sold shares</span></b>
worth £730k at 1143p to 1230p between April and May 2013. There have been no
significant director purchases.<o:p></o:p></span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span style="color: #c00000;">Note: I will be travelling for a further 3 weeks, and so I will be
publishing only one more article before 5 April</span></b><span style="color: #c00000;">.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<o:p><span style="font-family: Calibri;"> </span></o:p></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b style="mso-bidi-font-weight: normal;"><o:p><span style="font-family: Calibri;"> </span></o:p></b></div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com7tag:blogger.com,1999:blog-6123577473607160262.post-21359044360047879812014-02-19T12:15:00.000+00:002014-02-19T12:15:01.028+00:00<div abp="180">
</div>
<h3 abp="181" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="182" lang="EN-GB"><span abp="183" style="color: #20124d;">Oh
the banks! (4) Standard Chartered PLC<o:p abp="184"></o:p></span></span></h3>
<div abp="185">
</div>
<div abp="844" class="separator" style="clear: both; text-align: center;">
<a abp="845" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoP5NnieMYYqQ7JNDDpvSmIyaJT1ZH7adrWjtxtiUdgXrd5WyuH7qyy9kgNpFwuXfSXjoiD6uG8j3y2axmRKRnKyhwU-KvDpYTMEF64JPXeEwt9ZSM-_MvV04wAQhWxHxOxM_83zBJYDM/s1600/800px-Standard_Bank-Kimberly+S.+Africa+-wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="846" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoP5NnieMYYqQ7JNDDpvSmIyaJT1ZH7adrWjtxtiUdgXrd5WyuH7qyy9kgNpFwuXfSXjoiD6uG8j3y2axmRKRnKyhwU-KvDpYTMEF64JPXeEwt9ZSM-_MvV04wAQhWxHxOxM_83zBJYDM/s1600/800px-Standard_Bank-Kimberly+S.+Africa+-wiki.jpg" height="213" width="320" /></a></div>
<div abp="188" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="189" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shapetype
id="_x0000_t75" coordsize="21600,21600" o:spt="75" o:preferrelative="t"
path="m@4@5l@4@11@9@11@9@5xe" filled="f" stroked="f">
<v:stroke joinstyle="miter"/>
<v:formulas>
<v:f eqn="if lineDrawn pixelLineWidth 0"/>
<v:f eqn="sum @0 1 0"/>
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<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image001.jpg"
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<div abp="191" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="192" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="193" style="font-family: Calibri;">The 19th century Kimberley branch, South
Africa, courtesy Wikipedia<o:p abp="194"></o:p></span></span></div>
<div abp="195">
</div>
<div abp="196" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="197" style="font-family: Calibri;"><b abp="198"><span abp="199" lang="EN-GB">Five years have elapsed since the financial crisis and</span></b><span abp="200" lang="EN-GB"> it is time to consider investing in banks again. See <a abp="201" href="http://thejoyfulinvestor.blogspot.co.uk/2014/01/ohthe-banks-1-andhsbc-holdings-plc.html"><span abp="202" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2014/01/ohthe-banks-1-andhsbc-holdings-plc.html</span></a>
for the rationale behind this statement.</span></span></div>
<div abp="203">
</div>
<div abp="204" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="205" style="font-family: Calibri;"><b abp="206"><span abp="207" lang="EN-GB">Standard Chartered (StanChart) was the only British bank</span></b><span abp="208" lang="EN-GB"> to escape the financial crisis of 2008 and 2009 unscathed. In part
this was thanks to prudent management and in part because it has always had a
small presence in Europe and the USA. The company raised 3.3 billion pounds via
a rights issue in 2010 to meet the higher capital requirements of Basel III.</span></span></div>
<div abp="209">
</div>
<div abp="210" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="211" lang="EN-GB"><span abp="212" style="font-family: Calibri;">Although domiciled in the UK, <b abp="213">StanChart</b> has no branches in this
country. <b abp="214">StanChart</b> was formed in 1969 by the merger of two British
banks, Standard based in South Africa, Chartered in India, Australia and China.
<b abp="215">StanChart</b> sold the last stake in its South African bank to local
investors in 1987. Today the business is weighted towards Asia, with almost half
of its assets located in Hong Kong, Singapore and South Korea: </span></span></div>
<div abp="216">
</div>
<table abp="217" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="218">
<tr abp="219" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="220" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="221" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="222"><span abp="223" lang="EN-GB"><span abp="224" style="font-family: Calibri;">Distribution
of business<o:p abp="225"></o:p></span></span></b></div>
</td>
<td abp="226" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="227" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="228"><span abp="229" lang="EN-GB"><span abp="230" style="font-family: Calibri;">By Assets %<o:p abp="231"></o:p></span></span></b></div>
</td>
<td abp="232" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="233" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="234"><span abp="235" lang="EN-GB"><span abp="236" style="font-family: Calibri;">By Loans to
Customers %<o:p abp="237"></o:p></span></span></b></div>
</td>
<td abp="238" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="239" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="240"><span abp="241" lang="EN-GB"><span abp="242" style="font-family: Calibri;">By Profit Before
Tax %<o:p abp="243"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="244" style="mso-yfti-irow: 1;">
<td abp="245" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="246" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="247"><span abp="248" lang="EN-GB"><span abp="249" style="font-family: Calibri;">US
$ value billions<o:p abp="250"></o:p></span></span></b></div>
</td>
<td abp="251" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="252" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="253" lang="EN-GB"><span abp="254" style="font-family: Calibri;">$637 bn</span></span></div>
</td>
<td abp="255" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="256" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="257" lang="EN-GB"><span abp="258" style="font-family: Calibri;">$289 bn</span></span></div>
</td>
<td abp="259" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="260" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="261" lang="EN-GB"><span abp="262" style="font-family: Calibri;">$6.9 bn</span></span></div>
</td>
</tr>
<tr abp="263" style="mso-yfti-irow: 2;">
<td abp="264" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="265" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="266"><span abp="267" lang="EN-GB"><span abp="268" style="font-family: Calibri;">Hong
Kong, Singapore, S. Korea<o:p abp="269"></o:p></span></span></b></div>
</td>
<td abp="270" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="271" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="272" lang="EN-GB"><span abp="273" style="font-family: Calibri;">48%</span></span></div>
</td>
<td abp="274" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="275" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="276" lang="EN-GB"><span abp="277" style="font-family: Calibri;">48%</span></span></div>
</td>
<td abp="278" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="279" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="280" lang="EN-GB"><span abp="281" style="font-family: Calibri;">45%</span></span></div>
</td>
</tr>
<tr abp="282" style="mso-yfti-irow: 3;">
<td abp="283" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="284" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="285"><span abp="286" lang="EN-GB"><span abp="287" style="font-family: Calibri;">Other
Asia Pacific*<o:p abp="288"></o:p></span></span></b></div>
</td>
<td abp="289" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="290" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="291" lang="EN-GB"><span abp="292" style="font-family: Calibri;">19%</span></span></div>
</td>
<td abp="293" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="294" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="295" lang="EN-GB"><span abp="296" style="font-family: Calibri;">20%</span></span></div>
</td>
<td abp="297" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="298" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="299" lang="EN-GB"><span abp="300" style="font-family: Calibri;">18%</span></span></div>
</td>
</tr>
<tr abp="301" style="mso-yfti-irow: 4;">
<td abp="302" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="303" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="304"><span abp="305" lang="EN-GB"><span abp="306" style="font-family: Calibri;">India<o:p abp="307"></o:p></span></span></b></div>
</td>
<td abp="308" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="309" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="310" lang="EN-GB"><span abp="311" style="font-family: Calibri;">6%</span></span></div>
</td>
<td abp="312" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="313" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="314" lang="EN-GB"><span abp="315" style="font-family: Calibri;">8%</span></span></div>
</td>
<td abp="316" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="317" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="318" lang="EN-GB"><span abp="319" style="font-family: Calibri;">10%</span></span></div>
</td>
</tr>
<tr abp="320" style="mso-yfti-irow: 5;">
<td abp="321" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="322" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="323"><span abp="324" lang="EN-GB"><span abp="325" style="font-family: Calibri;">Middle
East & Other South Asia<o:p abp="326"></o:p></span></span></b></div>
</td>
<td abp="327" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="328" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="329" lang="EN-GB"><span abp="330" style="font-family: Calibri;">7%</span></span></div>
</td>
<td abp="331" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="332" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="333" lang="EN-GB"><span abp="334" style="font-family: Calibri;">9%</span></span></div>
</td>
<td abp="335" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="336" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="337" lang="EN-GB"><span abp="338" style="font-family: Calibri;">11%</span></span></div>
</td>
</tr>
<tr abp="339" style="mso-yfti-irow: 6;">
<td abp="340" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="341" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="342"><span abp="343" lang="EN-GB"><span abp="344" style="font-family: Calibri;">Africa<o:p abp="345"></o:p></span></span></b></div>
</td>
<td abp="346" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="347" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="348" lang="EN-GB"><span abp="349" style="font-family: Calibri;">3%</span></span></div>
</td>
<td abp="350" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="351" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="352" lang="EN-GB"><span abp="353" style="font-family: Calibri;">4%</span></span></div>
</td>
<td abp="354" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="355" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="356" lang="EN-GB"><span abp="357" style="font-family: Calibri;">11%</span></span></div>
</td>
</tr>
<tr abp="358" style="mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td abp="359" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 196.8pt;" valign="top" width="262">
<div abp="360" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="361"><span abp="362" lang="EN-GB"><span abp="363" style="font-family: Calibri;">UK,
Americas, Other Europe<o:p abp="364"></o:p></span></span></b></div>
</td>
<td abp="365" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="366" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="367" lang="EN-GB"><span abp="368" style="font-family: Calibri;">17%</span></span></div>
</td>
<td abp="369" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="370" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="371" lang="EN-GB"><span abp="372" style="font-family: Calibri;">11%</span></span></div>
</td>
<td abp="373" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 72.4pt;" valign="top" width="97">
<div abp="374" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="375" lang="EN-GB"><span abp="376" style="font-family: Calibri;">5%</span></span></div>
</td>
</tr>
</tbody></table>
<div abp="377">
</div>
<div abp="378" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="379" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="380" style="font-family: Calibri;">Source: 2012 Annual Report
*Mainly China, Malaysia, Indonesia and Taiwan<o:p abp="381"></o:p></span></span></div>
<div abp="382">
</div>
<div abp="383" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="384" lang="EN-GB"><span abp="385" style="font-family: Calibri;">East Asia may be the centre of global growth, but it is also an area
of political tension. North Korea's belligerent, possibly unhinged, new dictator
does not have the institutional restraints of normal leaders. And China is
confronting its neighbours - particularly Japan - over the Senkaku Islands and
economic and territorial rights over the South China Sea. </span></span></div>
<div abp="386">
</div>
<div abp="387" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="388" style="font-family: Calibri;"><b abp="389"><span abp="390" lang="EN-GB">Until January 2014 StanChart was organised into two businesses</span></b><span abp="391" lang="EN-GB">, consumer and wholesale banking. This is now to be integrated into
one. This will enable cost savings by merging staff functions, 'strengthen its
distinctive culture' (its brand), allocate resources where they can best be
used and to increase cross-selling. Perhaps the growth of 'network banking',
where the bank's trading customers provide revenues across countries and
regions, played a part in the reorganization. Still, to an outsider, the
organizational chart appears to be unusual. The Deputy CEO, responsible now for
both consumer and wholesale banking, and two regional directors report to the
CEO who reports to the Chairman. Overlapping responsibilities can lead to
internecine hostilities.</span></span></div>
<div abp="392">
</div>
<div abp="393" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="394" style="font-family: Calibri;"><span style="color: #660000;"><b abp="395"><span abp="396" lang="EN-GB">StanChart is in the business of retail, corporate and investment
banking</span></b><span abp="397" lang="EN-GB">:</span></span></span></div>
<div abp="398">
</div>
<div abp="399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="400" style="font-family: Calibri;"><b abp="401"><span abp="402" lang="EN-GB">Consumer (retail) banking,</span></b><span abp="403" lang="EN-GB"> covering
cards, personal loans, wealth management, deposits and mortgage and auto
finance, is the source of 38% of the bank's $19 billion operating income.</span></span></div>
<div abp="404">
</div>
<div abp="405" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="406" style="font-family: Calibri;"><b abp="407"><span abp="408" lang="EN-GB">Commercial banking</span></b><span abp="409" lang="EN-GB">, which includes
income from trade, corporate cash management and custody and lending, accounts
for a further 38% of operating income. <b abp="410">StanChart </b>claims to offer the
largest number of currencies of any bank on its trading platform.</span></span></div>
<div abp="411">
</div>
<div abp="412" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="413" style="font-family: Calibri;"><b abp="414"><span abp="415" lang="EN-GB">Investment banking</span></b><span abp="416" lang="EN-GB">, including corporate
finance (arranging loans and equity financing) asset and liability management (the
treasury function and risk management) and providing proprietary equity and
mezzanine finance is the source of 24% of the bank's business. <b abp="417">StanChart</b>
has $3.2 billion of its own funds invested in companies.</span></span></div>
<div abp="418">
</div>
<div abp="419" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="420" style="font-family: Calibri;"><b abp="421"><span abp="422" lang="EN-GB">'Network banking'</span></b><span abp="423" lang="EN-GB"> now accounts for over
half the combined revenues of Commercial and Investment banking. The growth
came mainly from China - via Hong Kong and between the China-Africa corridor -
India, Africa and Korea.</span></span></div>
<div abp="424">
</div>
<div abp="425" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="426"><span abp="427" lang="EN-GB"><span abp="428" style="font-family: Calibri;"><span style="color: #660000;">StanChart has considerable strengths. Consider:<o:p abp="429"></o:p></span></span></span></b></div>
<div abp="430">
</div>
<div abp="431" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="432" lang="EN-GB"><span abp="433" style="font-family: Calibri;">1. <b abp="434">It claims to be the second largest bank in the world</b> for
trade and transactional finance. This is based on its large East Asian banking
presence.<span abp="435" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="436">
</div>
<div abp="437" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="438" lang="EN-GB"><span abp="439" style="font-family: Calibri;">2.<span abp="440" style="mso-spacerun: yes;"> </span><b abp="441">StanChart</b> is a
specialist in renminbi (RMB) transactions and financing. The bank reports that
it is the largest issuer of RMB euro commercial paper, the largest non-Chinese
RMB clearing bank and a leading advisor and agent to China's central bank. It
is also the second largest bank for RMB issuance in Hong Kong and one of the
largest non-Chinese bank for RMB services in the Asia Pacific region, Europe
and North America. </span></span></div>
<div abp="442">
</div>
<div abp="443" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="444" lang="EN-GB"><span abp="445" style="font-family: Calibri;">3. <b abp="446">The bank is targeting Africa for expansion</b>. Its main
markets are Kenya, Ghana and Nigeria and it was ranked best bank in Botswana,
Gambia, Zambia and Zimbabwe by Global Finance (World's Best Banks 2013 - Africa).
</span></span></div>
<div abp="447">
</div>
<div abp="448" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="449" lang="EN-GB"><span abp="450" style="font-family: Calibri;">4. <b abp="451">The bank's balance sheet is very strong</b>:</span></span></div>
<div abp="452">
</div>
<div abp="453" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="454" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="455" style="mso-list: Ignore;">·<span abp="456" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="457" dir="LTR"></span><span abp="458" style="font-family: Calibri;"><b abp="459"><span abp="460" lang="EN-GB">Solvency</span></b><span abp="461" lang="EN-GB">: With a Core Tier 1 capital ratio of 11.4% and Equity to Assets
ratio of 7.0%, it easily exceeds the Basel III requirements of 6% and 4.5%
respectively. Its uncovered non-performing loans at $2.6 billion are less than
6% of equity.</span></span></div>
<div abp="462">
</div>
<div abp="463" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="464" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="465" style="mso-list: Ignore;">·<span abp="466" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="467" dir="LTR"></span><span abp="468" style="font-family: Calibri;"><b abp="469"><span abp="470" lang="EN-GB">Liquidity</span></b><span abp="471" lang="EN-GB">: Its loan to deposit ratio is just 77%, well below that of any UK
bank and 28% of its assets are liquid assets.</span></span></div>
<div abp="472">
</div>
<div abp="473" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="474" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="475" style="mso-list: Ignore;">·<span abp="476" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="477" dir="LTR"></span><span abp="478" style="font-family: Calibri;"><b abp="479"><span abp="480" lang="EN-GB">Standard
& Poor's</span></b><span abp="481" lang="EN-GB"> awards <b abp="482">StanChart </b>an A+ credit
rating for long-term obligations.</span></span></div>
<div abp="483">
</div>
<div abp="484" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="485" lang="EN-GB"><span abp="486" style="font-family: Calibri;">5. <b abp="487">The bank's efficiency ratio</b> (cost to income) at 54%% is comparable
to <b abp="488">HSBC</b> (54%) and <b abp="489">Santander</b> (50%), and far lower than other UK
banks (<b abp="490">Barclays is </b>71%).</span></span></div>
<div abp="491">
</div>
<div abp="492" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="493" lang="EN-GB"><span abp="494" style="font-family: Calibri;">6. Both <b abp="495">earnings per share</b> (normalised) and <b abp="496">equity per
share</b> have increased substantially these last five years and it is one of
few banks whose return on equity exceeds its cost of equity.</span></span></div>
<div abp="497">
</div>
<div abp="498" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="499" lang="EN-GB"><span abp="500" style="font-family: Calibri;">These strengths are reflected in <b abp="501">StanChart'</b>s share price
performance (in blue) compared to HSBC (in green). It is a constituent of the
FTSE 100 (in red).</span></span></div>
<div abp="502">
</div>
<div abp="874" class="separator" style="clear: both; text-align: center;">
<a abp="875" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjx93QVJwZq89ttZJtLV0D8LuZagVwlZlnF4KfyHpdtkwoo0ya8Ox4l6xY9Kq1No6dA2jVjt1RncE9ySPsGgGjrgtmf14rIwK0Ceg8TKR0t69_Bd5mPy-GxurYxX0GfmlXkiyruI37NxxM/s1600/Stanchart+Vs+FTSE+100+HSBC.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="876" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjx93QVJwZq89ttZJtLV0D8LuZagVwlZlnF4KfyHpdtkwoo0ya8Ox4l6xY9Kq1No6dA2jVjt1RncE9ySPsGgGjrgtmf14rIwK0Ceg8TKR0t69_Bd5mPy-GxurYxX0GfmlXkiyruI37NxxM/s1600/Stanchart+Vs+FTSE+100+HSBC.png" height="173" width="400" /></a></div>
<div abp="503" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="504" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_1"
o:spid="_x0000_i1027" type="#_x0000_t75" alt="Stanchart Vs FTSE 100 HSBC.png"
style='width:425.25pt;height:185.25pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png"
o:title="Stanchart Vs FTSE 100 HSBC"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
<div abp="507" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="508" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="509" style="font-family: Calibri;">Graph courtesy Yahoo, click to
enlarge</span></span></div>
<div abp="510">
</div>
<div abp="511" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="512" lang="EN-GB"><span abp="513" style="font-family: Calibri;">Yet, over the last two years, <b abp="514">StanChart</b> has underperformed
both <b abp="515">HSBC </b>and the FTSE 100 by about 30%:</span></span></div>
<div abp="516">
</div>
<div abp="900" class="separator" style="clear: both; text-align: center;">
<a abp="901" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinE0S45CvDrQ9pf7QWxHkdXFTSfL-kkRqNDlDE_o38gBW9tMqkjHwK37NLso7tznyEnKsaOovDtVpdfYOK2lc08vvbZcIxsIlAF583-GrxLSVbcDke5AnS371tcEipNJnaeqVaILl-KpQ/s1600/Stanchart+Vs+FTSE+100+HSBC.2yrpng.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="902" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinE0S45CvDrQ9pf7QWxHkdXFTSfL-kkRqNDlDE_o38gBW9tMqkjHwK37NLso7tznyEnKsaOovDtVpdfYOK2lc08vvbZcIxsIlAF583-GrxLSVbcDke5AnS371tcEipNJnaeqVaILl-KpQ/s1600/Stanchart+Vs+FTSE+100+HSBC.2yrpng.png" height="175" width="400" /></a></div>
<div abp="517" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="518" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_2"
o:spid="_x0000_i1026" type="#_x0000_t75" alt="Stanchart Vs FTSE 100 HSBC.2yrpng.png"
style='width:425.25pt;height:186.75pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image005.png"
o:title="Stanchart Vs FTSE 100 HSBC.2yrpng"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
<div abp="521" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="522" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="523" style="font-family: Calibri;">Graph courtesy Yahoo, click to
enlarge</span></span></div>
<div abp="524">
</div>
<div abp="525" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="526" style="font-family: Calibri;"><b abp="527"><span abp="528" lang="EN-GB">The derating of the bank's shares</span></b><span abp="529" lang="EN-GB"> is
partly based on a slowdown in profits and partly on a general derating of
emerging markets. 2012 profits were hit with a $667 million fine by three US
regulatory authorities for evading sanctions on Iran. Then in August 2013 the
bank announced that it had written down goodwill on its Korean assets by $1
billion, pushing that unit into a $863 million loss in the first half of 2013.
Tougher regulatory requirements, higher bad debts and a conflict with staff all
reduced the bank's Korean profitability.</span></span></div>
<div abp="530">
</div>
<div abp="531" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="532" style="font-family: Calibri;"><b abp="533"><span abp="534" lang="EN-GB">The bank's guidance for 2013 suggests earnings will fall short, by
about 10%, from 2012's level. <span abp="535" style="mso-spacerun: yes;"> </span></span></b><span abp="536" lang="EN-GB">Specifically, in its December 2013 pre-closing trading statement,
the bank stated that:</span></span></div>
<div abp="537">
</div>
<div abp="538" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="539" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="540" style="mso-list: Ignore;">Ø<span abp="541" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="542" dir="LTR"></span><span abp="543" lang="EN-GB"><span abp="544" style="font-family: Calibri;">Income would be about the same as 2012</span></span></div>
<div abp="545">
</div>
<div abp="546" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="547" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="548" style="mso-list: Ignore;">Ø<span abp="549" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="550" dir="LTR"></span><span abp="551" lang="EN-GB"><span abp="552" style="font-family: Calibri;">Net margin would be slightly down</span></span></div>
<div abp="553">
</div>
<div abp="554" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="555" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="556" style="mso-list: Ignore;">Ø<span abp="557" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="558" dir="LTR"></span><span abp="559" lang="EN-GB"><span abp="560" style="font-family: Calibri;">Second half impairment would be above the first
half but below 2012</span></span></div>
<div abp="561">
</div>
<div abp="562" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="563" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="564" style="mso-list: Ignore;">Ø<span abp="565" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="566" dir="LTR"></span><span abp="567" lang="EN-GB"><span abp="568" style="font-family: Calibri;">Core Tier 1 Capital was unchanged</span></span></div>
<div abp="569">
</div>
<div abp="570" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="571" lang="EN-GB" style="font-family: Wingdings; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;"><span abp="572" style="mso-list: Ignore;">Ø<span abp="573" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="574" dir="LTR"></span><span abp="575" lang="EN-GB"><span abp="576" style="font-family: Calibri;">The Korean operation would lose $200 million at
the operating level.</span></span></div>
<div abp="577">
</div>
<div abp="578" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="579" lang="EN-GB"><span abp="580" style="font-family: Calibri;">Further, worries about slowing growth in emerging markets caused
investors to pull funds out of those markets. And <b abp="581">StanChart</b> shares (in
blue), which are listed in Hong Kong, move fairly closely with the Chinese
Large Cap Index (in green).</span></span></div>
<div abp="582">
</div>
<div abp="925" class="separator" style="clear: both; text-align: center;">
<a abp="926" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrgoySvb66zIA9LCbqmKh4oCVo3Xfa1tYEBP5n6nVephk_R3Z4TjWld7MB6s0BEEkIEBoSG9Bdlk0hnMLGQVGEfxxJGtSbN3peBlHra_aW4kym2aSl4pMSjaIFqjde8pjciMn2Ce6YyEs/s1600/Stanchart+Vs+China+Large+cap.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="927" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrgoySvb66zIA9LCbqmKh4oCVo3Xfa1tYEBP5n6nVephk_R3Z4TjWld7MB6s0BEEkIEBoSG9Bdlk0hnMLGQVGEfxxJGtSbN3peBlHra_aW4kym2aSl4pMSjaIFqjde8pjciMn2Ce6YyEs/s1600/Stanchart+Vs+China+Large+cap.png" height="176" width="400" /></a></div>
<div abp="583" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="584" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_3"
o:spid="_x0000_i1025" type="#_x0000_t75" alt="Stanchart Vs China Large cap.png"
style='width:425.25pt;height:187.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image007.png"
o:title="Stanchart Vs China Large cap"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
<div abp="587" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="588" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="589" style="font-family: Calibri;">Graph courtesy Yahoo, click to
enlarge</span></span></div>
<div abp="590">
</div>
<div abp="591" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="592" style="font-family: Calibri;"><b abp="593"><span abp="594" lang="EN-GB">At the current price of 1290p</span></b><span abp="595" lang="EN-GB"> the shares
are on an historical PE ratio of 11 and yield 3.9%. The bank is capitalised at
31 billion pounds, which is an 18% premium to net asset value, similar to that
of <b abp="596">HSBC.</b> </span></span></div>
<div abp="597">
</div>
<div abp="598" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="599" lang="EN-GB"><span abp="600" style="font-family: Calibri;">Could this be a good moment to buy <b abp="601">StanChart</b> shares?</span></span></div>
<div abp="602">
</div>
<div abp="603" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="604" style="font-family: Calibri;"><b abp="605"><span abp="606" lang="EN-GB">On fairly
conservative assumptions, StanChart is valued at about 1480p by my model</span></b><span abp="607" lang="EN-GB">.* But banks, given their high leverage, sensitivity to market
conditions and ability to manipulate earnings, are difficult to value.</span></span></div>
<div abp="608">
</div>
<div abp="609" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="610" style="font-family: Calibri;"><span abp="611" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">*Earnings per share 10%
down on 2012 and grow by 5% per annum thereafter; 54% earnings retained; return
on equity 11%; equity per share growth 7% per annum; average PE ratio of 13.5;
all discounted at 10.9% (3.9% SLXX + 2% operating risk + 5% margin of safety)
for the 5 years 2014 to 2018. </span><span abp="612" lang="EN-GB"><span abp="613" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="614">
</div>
<div abp="615" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="616" style="font-family: Calibri;"><b abp="617"><span abp="618" lang="EN-GB">Management is optimistic</span></b><span abp="619" lang="EN-GB">:</span></span></div>
<div abp="620">
</div>
<div abp="621" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="622" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="623" style="font-family: Calibri;">"The<span abp="624" style="mso-spacerun: yes;"> </span>Group’s<span abp="625" style="mso-spacerun: yes;">
</span>income<span abp="626" style="mso-spacerun: yes;"> </span>and<span abp="627" style="mso-spacerun: yes;"> </span>balance<span abp="628" style="mso-spacerun: yes;">
</span>sheet<span abp="629" style="mso-spacerun: yes;"> </span>remain<span abp="630" style="mso-spacerun: yes;"> </span>well<span abp="631" style="mso-spacerun: yes;">
</span>diversified<span abp="632" style="mso-spacerun: yes;"> </span>by<span abp="633" style="mso-spacerun: yes;"> </span>product,<span abp="634" style="mso-spacerun: yes;">
</span>by customer<span abp="635" style="mso-spacerun: yes;"> </span>segment<span abp="636" style="mso-spacerun: yes;"> </span>and<span abp="637" style="mso-spacerun: yes;">
</span>by<span abp="638" style="mso-spacerun: yes;"> </span>geography.<span abp="639" style="mso-spacerun: yes;"> </span>We<span abp="640" style="mso-spacerun: yes;">
</span>remain<span abp="641" style="mso-spacerun: yes;"> </span>well<span abp="642" style="mso-spacerun: yes;"> </span>capitalised,<span abp="643" style="mso-spacerun: yes;">
</span>strongly funded and highly liquid.<o:p abp="644"></o:p></span></span></div>
<div abp="645">
</div>
<div abp="646" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="647" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="648" style="font-family: Calibri;">As we highlighted at our
November investor day, we are responding to near term challenges<span abp="649" style="mso-spacerun: yes;"> </span>to<span abp="650" style="mso-spacerun: yes;">
</span>ensure<span abp="651" style="mso-spacerun: yes;"> </span>we<span abp="652" style="mso-spacerun: yes;"> </span>strike<span abp="653" style="mso-spacerun: yes;">
</span>the<span abp="654" style="mso-spacerun: yes;"> </span>right<span abp="655" style="mso-spacerun: yes;"> </span>balance<span abp="656" style="mso-spacerun: yes;">
</span>between<span abp="657" style="mso-spacerun: yes;"> </span>growth<span abp="658" style="mso-spacerun: yes;"> </span>and<span abp="659" style="mso-spacerun: yes;">
</span>returns. We remain<span abp="660" style="mso-spacerun: yes;"> </span>confident<span abp="661" style="mso-spacerun: yes;"> </span>in the<span abp="662" style="mso-spacerun: yes;">
</span>strong underlying potential of our markets and of our competitive
positioning as we gain market share<span abp="663" style="mso-spacerun: yes;">
</span>supporting<span abp="664" style="mso-spacerun: yes;"> </span>the<span abp="665" style="mso-spacerun: yes;"> </span>ambitions<span abp="666" style="mso-spacerun: yes;">
</span>of<span abp="667" style="mso-spacerun: yes;"> </span>our clients and customers."<span abp="668" style="mso-spacerun: yes;"> </span>Source: December 2013 pre-closing trading
statement.<o:p abp="669"></o:p></span></span></div>
<div abp="670">
</div>
<div abp="671" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="672"><span abp="673" lang="EN-GB"><span abp="674" style="font-family: Calibri;"><span style="color: #660000;">Investors will want to take into consideration:<o:p abp="675"></o:p></span></span></span></b></div>
<div abp="676">
</div>
<div abp="677" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="678" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="679" style="mso-list: Ignore;"><span abp="680" style="font-family: Calibri;">1.</span><span abp="681" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="682" dir="LTR"></span><span abp="683" style="font-family: Calibri;"><span abp="684" lang="EN-GB"><strong>The bank's
management</strong>, by ensuring a strong balance sheet while directing capital to
markets where returns are best, has proven to be one of the best in banking.
However Korea, where <b abp="685">StanChart</b> has made a large investment, has become a
difficult market in which to secure an adequate return on capital. In its 1st
half year 2013 report management explained what they are doing: </span><span abp="686" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">"We cannot escape the
realities of the Korean context, but we are determined to improve productivity
and return on capital, so we are further reducing costs, simplifying the
operating structure and reinforcing the balance sheet. We are tightening our
focus on core clients, which means exiting unprofitable relationships. We are
reconfiguring the branch network, putting greater emphasis on digital and we
are reviewing options for some non-core businesses, including potential
sale."</span></span></div>
<div abp="687">
</div>
<div abp="688" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="689" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="690" style="mso-list: Ignore;"><span abp="691" style="font-family: Calibri;">2.</span><span abp="692" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="694" style="font-family: Calibri;"><b abp="695"><span abp="696" lang="EN-GB">Stanchart'</span></b><span abp="697" lang="EN-GB">s <b abp="698">reliance on China</b> and its satellites for both consumer and
retail banking. <span abp="699" style="mso-spacerun: yes;"> </span>China's public debt is
estimated at 200% of GDP and it is still growing at a faster rate than GDP. A
bursting of the bubble in China's property market would have a knock-on effect
on <b abp="700">StanChart's</b> main markets. While the bank is expanding fast in Africa,
where returns are good, this is still of small relevance when compared to
China. A financial crisis in China would have major consequences for the bank.</span></span></div>
<div abp="701">
</div>
<div abp="702" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="703" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="704" style="mso-list: Ignore;"><span abp="705" style="font-family: Calibri;">3.</span><span abp="706" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="708" style="font-family: Calibri;"><b abp="709"><span abp="710" lang="EN-GB">Temasek</span></b><span abp="711" lang="EN-GB">, Singapore's Sovereign Wealth Fund, with 18.2% of <b abp="712">StanChart's </b>shares,
is the largest shareholder of the bank. Given Temasek's regional influence and
cautious investment criteria, this is a stabilizing factor for the bank. </span></span></div>
<div abp="713">
</div>
<div abp="714" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="715" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="716" style="mso-list: Ignore;"><span abp="717" style="font-family: Calibri;">4.</span><span abp="718" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="720" style="font-family: Calibri;"><b abp="721"><span abp="722" lang="EN-GB">StanChart</span></b><span abp="723" lang="EN-GB"> is, with some other companies listed in London, a substitute for
emerging markets. Just as the bank's derating coincides with the derating of
emerging markets, so it is reasonable to expect its shares to recover when
emerging markets do. </span></span></div>
<div abp="724">
</div>
<div abp="725" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="726" lang="EN-GB" style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="727" style="mso-list: Ignore;"><span abp="728" style="font-family: Calibri;">5.</span><span abp="729" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"> </span></span></span><!--[endif]--><span abp="731" style="font-family: Calibri;"><b abp="732"><span abp="733" lang="EN-GB">Directors
have been selling shares</span></b><span abp="734" lang="EN-GB"> in the last 12 months.
Between March and August 2013 directors have sold shares worth 3.3 million
pounds at between 1577p and 1805p a share. Considering the current share price
is 1290p, the directors sold at the right time. </span></span></div>
<div abp="735">
</div>
<div abp="736" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="737" style="font-family: Calibri;"><b abp="738"><span abp="739" lang="EN-GB" style="color: #c00000;">Note: I will be travelling for 6 weeks, and so
I will be publishing only the occasional article until 5 April</span></b><span abp="740" lang="EN-GB" style="color: #c00000;">.<o:p abp="741"></o:p></span></span></div>
<div abp="742">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com1tag:blogger.com,1999:blog-6123577473607160262.post-67954446303084464932014-02-12T19:50:00.000+00:002014-02-13T09:49:10.507+00:00<div abp="819">
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<h3 abp="820" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #20124d;">Oh the banks! (3) Barclays PLC<o:p abp="824"></o:p></span></h3>
<div abp="825">
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<div abp="826" class="separator" style="clear: both; text-align: center;">
<a abp="827" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOa8Nv2mPgcoPNuwlDfIejRJeV_3WxqPnfnqj6fYYHdwXsG9grlzIXHkDRERu8BNIM-eJrHuQVSrWTZv8odKbU1k7rSpyMsqYIZ3uP6AfaM1upN3_EWT-XxXUCuokhSiFzheR_QObLXqE/s1600/Hamad_bin_Khalifa_Al_Thani_Saviour+of+Barclays+Wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="828" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOa8Nv2mPgcoPNuwlDfIejRJeV_3WxqPnfnqj6fYYHdwXsG9grlzIXHkDRERu8BNIM-eJrHuQVSrWTZv8odKbU1k7rSpyMsqYIZ3uP6AfaM1upN3_EWT-XxXUCuokhSiFzheR_QObLXqE/s1600/Hamad_bin_Khalifa_Al_Thani_Saviour+of+Barclays+Wiki.jpg" /></a></div>
<div abp="829" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="853" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="854" style="font-family: Calibri;">Sheik Hamad bin Khalifa Al Thani of
Qatar, saviour of Barclays, courtesy Wikipedia<o:p abp="855"></o:p></span></span></div>
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<div abp="857" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="858" style="font-family: Calibri;"><b abp="859"><span abp="860" lang="EN-GB">Five years have elapsed since the financial crisis and</span></b><span abp="861" lang="EN-GB"> it is time to consider investing in banks again. See <a abp="862" href="http://thejoyfulinvestor.blogspot.co.uk/2014/01/ohthe-banks-1-andhsbc-holdings-plc.html"><span abp="863" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2014/01/ohthe-banks-1-andhsbc-holdings-plc.html</span></a>
</span></span></div>
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<div abp="865" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="866" style="font-family: Calibri;"><b abp="867"><span abp="868" lang="EN-GB">Barclays shareholders have had a rotten time since the financial
crisis</span></b><span abp="869" lang="EN-GB">. Shares worth over six pounds in August 2007
collapsed to 47p by March 2009. Today they stand at 264p. The following graph
compares <b abp="870">Barclays' </b>share price (in <b abp="871"><span abp="872" style="color: #0070c0;">blue</span></b>)
to <b abp="873">HSBC'</b>s share price (in <b abp="874"><span abp="875" style="color: #4620b0;">purple</span></b>)
since 1988.</span></span></div>
<div abp="876">
</div>
<div abp="1348" class="separator" style="clear: both; text-align: center;">
<a abp="1349" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX9fiYOedtnxEzX11yGRZWJlU47bmcRImFNL4KJOcDTJXZYQrFSLNacD-eQcJ0OGlgaR6IiX7qGWvjayS9TpT0_3sBQRJqsuRzvyZ1m_TuaFvvE2h1EXDaMsQ1D3WUxpDW1kyJ0NNT_FA/s1600/Barclays+Vs+HSBC.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1350" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX9fiYOedtnxEzX11yGRZWJlU47bmcRImFNL4KJOcDTJXZYQrFSLNacD-eQcJ0OGlgaR6IiX7qGWvjayS9TpT0_3sBQRJqsuRzvyZ1m_TuaFvvE2h1EXDaMsQ1D3WUxpDW1kyJ0NNT_FA/s1600/Barclays+Vs+HSBC.png" height="237" width="400" /></a></div>
<div abp="877" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="878" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="879" alt="Barclays Vs HSBC.png" id="Picture_x0020_1" o:spid="_x0000_i1026" style="height: 234.75pt; mso-wrap-style: square; visibility: visible; width: 394.5pt;" type="#_x0000_t75"><span abp="880" style="font-family: Calibri;">
<v:imagedata abp="881" o:title="Barclays Vs HSBC" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.png">
</v:imagedata></span></v:shape></span></div>
<div abp="883" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="884" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="885" style="font-family: Calibri;">Graph
courtesy Barclays website, click to enlarge<o:p abp="886"></o:p></span></span></div>
<div abp="887">
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<div abp="888" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="889" lang="EN-GB"><o:p abp="890"><span abp="891" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="893" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="894"><span abp="895" lang="EN-GB"><span abp="896" style="font-family: Calibri;"><span style="color: #cc0000;">The main concern for investors is the quality of Barclays'
management. Consider</span>:<o:p abp="897"></o:p></span></span></b></div>
<div abp="898">
</div>
<div abp="899" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="900" style="font-family: Calibri;"><b abp="901"><span abp="902" lang="EN-GB">The ABN Amro deal that failed</span></b><span abp="903" lang="EN-GB">. <b abp="904">Barclays</b>
agreed to buy ABN Amro in 2007 for €67.5 billion when a consortium led by <b abp="905">RBS
</b>outbid <b abp="906">Barclays</b> for the Dutch bank. The collapse of <b abp="907">RBS</b> was
largely the result of paying 49 billion pounds for ABN Amro that went on to
lose billions in its US operations. <b abp="908">Barclays</b> would have collapsed had
the deal gone through.</span></span></div>
<div abp="909">
</div>
<div abp="910" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="911" lang="EN-GB"><span abp="912" style="font-family: Calibri;"><span abp="913" style="mso-spacerun: yes;"> </span><b abp="914">Caught short of capital in
2008, Barclays has floundered to keep afloat</b>.</span></span></div>
<div abp="915">
</div>
<div abp="916" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="917" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="918" style="mso-list: Ignore;">·<span abp="919" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="920" dir="LTR"></span><span abp="921" lang="EN-GB"><span abp="922" style="font-family: Calibri;">In July
2008, <b abp="923">Barclays</b> attempted a rights issue, which failed.</span></span></div>
<div abp="924">
</div>
<div abp="925" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="926" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="927" style="mso-list: Ignore;">·<span abp="928" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="929" dir="LTR"></span><span abp="930" lang="EN-GB"><span abp="931" style="font-family: Calibri;">In
November 2008, Qatar and Abu Dhabi investors put 7.3 billion pounds into <b abp="932">Barclays
</b>in exchange for 30% of the bank. UK authorities are looking into possible
bribes paid to intermediaries and to the possibility that <b abp="933">Barclays</b>
loaned funds to Qatar to invest in the bank. </span></span></div>
<div abp="934">
</div>
<div abp="935" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="936" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="937" style="mso-list: Ignore;">·<span abp="938" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="939" dir="LTR"></span><span abp="940" lang="EN-GB"><span abp="941" style="font-family: Calibri;">In 2009, <b abp="942">Barclays
</b>sold iShares to BlackRock for 8.4 billion pounds and raised a further 6.5
billion pounds capital by cancelling its dividend (2 billion pounds) and via
another rights issue (4.5 billion pounds).</span></span></div>
<div abp="943">
</div>
<div abp="944" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l2 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="945" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="946" style="mso-list: Ignore;">·<span abp="947" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="948" dir="LTR"></span><span abp="949" lang="EN-GB"><span abp="950" style="font-family: Calibri;">In 2013, <b abp="951">Barclays</b>
raised a further 5.8 billion pounds via a rights issue as part of plan to
enable it to reach the minimum capital requirements set out by the Prudential
Regulation Authority. The total shortfall was 12.8 billion pounds and the bank
aims to meet this requirement by June 2014.</span></span></div>
<div abp="952">
</div>
<div abp="953" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="954"><span abp="955" lang="EN-GB"><span abp="956" style="font-family: Calibri;">Barclays has a reputation for unethical banking. </span></span></b></div>
<div abp="957">
</div>
<div abp="958" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 19.5pt; text-align: justify;">
<span abp="959" lang="EN-GB"><span abp="960" style="font-family: Calibri;">Like other UK banks, <b abp="961">Barclays</b> is
paying for mis-selling payment protection insurance and for rigging LIBOR rates.
But it has also been fined for failing to provide adequate investment advice to
its customers, mis-selling interest rate swaps to its customers, for
manipulating electricity markets in the USA, and for evading sanctions on Iran.
Further, HMRC ruled that <b abp="962">Barclays</b> had evaded tax. The total cost of
fines and compensation total 6.2 billion pounds.<span abp="963" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="964">
</div>
<div abp="965" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="966" style="font-family: Calibri;"><b abp="967"><span abp="968" lang="EN-GB">The bank that puts bonuses before shareholder returns</span></b><span abp="969" lang="EN-GB">. </span></span></div>
<div abp="970">
</div>
<div abp="971" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 18pt; text-align: justify;">
<span abp="972" style="font-family: Calibri;"><b abp="973"><span abp="974" lang="EN-GB">Barclays has paid out 8.6 billion pounds</span></b><span abp="975" lang="EN-GB"> in bonuses to staff between 2011 and 2013, when profits are
declining and the bank had to go to shareholders to raise new capital. </span></span></div>
<div abp="976">
</div>
<div abp="977" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="978" style="font-family: Calibri;"><b abp="979"><span abp="980" lang="EN-GB">Sliding profits and capital inadequacy</span></b><span abp="981" lang="EN-GB">,
coupled with persistent signs that <b abp="982">Barclays</b> is unmanageable is reflected
in the recent volatility of its shares (in <b abp="983"><span abp="984" style="color: #0070c0;">blue</span></b>)
compared to <b abp="985">HSBC </b>(in<span abp="986" style="color: #00b050;"> <b abp="987">green</b></span>)
and the FTSE 100 (in <b abp="988"><span abp="989" style="color: red;">red</span></b>) of which it is
a component. </span></span></div>
<div abp="990">
</div>
<div abp="1353" class="separator" style="clear: both; text-align: center;">
<a abp="1354" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj26aFG4nfVFO8UyOkEN_lWytXPPsTJH47j_5gHmdbTsNiu4FGN4Kw8Q7CQ_btKybM4H2CQxaDI3gbQ-7LKRSBMM6Vn01X2TPDx_Zs-UE-CQoXX6VUrt6i3HoaSM3nM8dq8MRpLnpC9-Zk/s1600/Barclays+Vs+HSBC+FTSE+100.+3yrpng.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1355" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj26aFG4nfVFO8UyOkEN_lWytXPPsTJH47j_5gHmdbTsNiu4FGN4Kw8Q7CQ_btKybM4H2CQxaDI3gbQ-7LKRSBMM6Vn01X2TPDx_Zs-UE-CQoXX6VUrt6i3HoaSM3nM8dq8MRpLnpC9-Zk/s1600/Barclays+Vs+HSBC+FTSE+100.+3yrpng.png" height="240" width="400" /></a></div>
<div abp="991" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="992" style="font-family: Calibri;"><span abp="993" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="994" alt="Barclays Vs HSBC FTSE 100. 3yrpng.png" id="Picture_x0020_2" o:spid="_x0000_i1025" style="height: 247.5pt; mso-wrap-style: square; visibility: visible; width: 412.5pt;" type="#_x0000_t75">
<v:imagedata abp="995" o:title="Barclays Vs HSBC FTSE 100. 3yrpng" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.gif">
</v:imagedata></v:shape></span><span abp="996" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="997"></o:p></span></span></div>
<div abp="998">
</div>
<div abp="999" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1000" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1001" style="font-family: Calibri;">Courtesy
TD Waterhouse, click to enlarge<o:p abp="1002"></o:p></span></span></div>
<div abp="1003">
</div>
<div abp="1004" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1005" lang="EN-GB"><o:p abp="1006"><span abp="1007" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1008">
</div>
<div abp="1009" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1010" lang="EN-GB"><span abp="1011" style="font-family: Calibri;">Unlike <b abp="1012">HSBC</b> or <b abp="1013">Santander</b>, <b abp="1014">Barclays</b> is both an
investment bank and a retail bank. The investment bank, after the acquisition
of Lehmann's core business, is centred on London and New York. Considering that
Barclays reckons its cost of capital is 11.5%, neither is doing well. </span></span></div>
<div abp="1015">
</div>
<table abp="1016" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 12.5pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1017">
<tr abp="1018" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1019" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 191.35pt;" valign="top" width="255"><div abp="1020" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1021"><span abp="1022" lang="EN-GB"><span abp="1023" style="font-family: Calibri;">By
business in pounds billions for 2013<o:p abp="1024"></o:p></span></span></b></div>
</td>
<td abp="1025" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1026" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1027"><span abp="1028" lang="EN-GB"><span abp="1029" style="font-family: Calibri;">Attributable<o:p abp="1030"></o:p></span></span></b></div>
<div abp="1031" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1032"><span abp="1033" lang="EN-GB"><span abp="1034" style="font-family: Calibri;">Profit/(Loss)<o:p abp="1035"></o:p></span></span></b></div>
</td>
<td abp="1036" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104"><div abp="1037" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1038"><span abp="1039" lang="EN-GB"><span abp="1040" style="font-family: Calibri;">Average
Equity<o:p abp="1041"></o:p></span></span></b></div>
</td>
<td abp="1042" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1043" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1044"><span abp="1045" lang="EN-GB"><span abp="1046" style="font-family: Calibri;">Return
on Equity%<o:p abp="1047"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="1048" style="mso-yfti-irow: 1;">
<td abp="1049" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 191.35pt;" valign="top" width="255"><div abp="1050" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1051"><span abp="1052" lang="EN-GB"><span abp="1053" style="font-family: Calibri;">Retail
(UK, Europe, Africa, Barclaycard)<o:p abp="1054"></o:p></span></span></b></div>
</td>
<td abp="1055" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1056" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1057" lang="EN-GB"><span abp="1058" style="font-family: Calibri;">(0.1)</span></span></div>
</td>
<td abp="1059" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104"><div abp="1060" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1061" lang="EN-GB"><span abp="1062" style="font-family: Calibri;">17.9</span></span></div>
</td>
<td abp="1063" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1064" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1065" lang="EN-GB"><span abp="1066" style="font-family: Calibri;">Neg.</span></span></div>
</td>
</tr>
<tr abp="1067" style="mso-yfti-irow: 2;">
<td abp="1068" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 191.35pt;" valign="top" width="255"><div abp="1069" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1070"><span abp="1071" lang="EN-GB"><span abp="1072" style="font-family: Calibri;">Investment
Bank<o:p abp="1073"></o:p></span></span></b></div>
</td>
<td abp="1074" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1075" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1076" lang="EN-GB"><span abp="1077" style="font-family: Calibri;">1.5</span></span></div>
</td>
<td abp="1078" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104"><div abp="1079" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1080" lang="EN-GB"><span abp="1081" style="font-family: Calibri;">19.0</span></span></div>
</td>
<td abp="1082" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1083" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1084" lang="EN-GB"><span abp="1085" style="font-family: Calibri;">7.9%</span></span></div>
</td>
</tr>
<tr abp="1086" style="mso-yfti-irow: 3;">
<td abp="1087" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 191.35pt;" valign="top" width="255"><div abp="1088" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1089"><span abp="1090" lang="EN-GB"><span abp="1091" style="font-family: Calibri;">Corporate,
Wealth & Investment Mgt<o:p abp="1092"></o:p></span></span></b></div>
</td>
<td abp="1093" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1094" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1095" lang="EN-GB"><span abp="1096" style="font-family: Calibri;">(0.4)</span></span></div>
</td>
<td abp="1097" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104"><div abp="1098" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1099" lang="EN-GB"><span abp="1100" style="font-family: Calibri;">10.2</span></span></div>
</td>
<td abp="1101" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1102" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1103" lang="EN-GB"><span abp="1104" style="font-family: Calibri;">Neg.</span></span></div>
</td>
</tr>
<tr abp="1105" style="mso-yfti-irow: 4;">
<td abp="1106" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 191.35pt;" valign="top" width="255"><div abp="1107" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1108"><span abp="1109" lang="EN-GB"><span abp="1110" style="font-family: Calibri;">Head
Office and Other Operations<o:p abp="1111"></o:p></span></span></b></div>
</td>
<td abp="1112" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1113" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1114" lang="EN-GB"><span abp="1115" style="font-family: Calibri;">(0.5)</span></span></div>
</td>
<td abp="1116" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104"><div abp="1117" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1118" lang="EN-GB"><span abp="1119" style="font-family: Calibri;">5.1</span></span></div>
</td>
<td abp="1120" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1121" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1122" lang="EN-GB"><span abp="1123" style="font-family: Calibri;">Neg.</span></span></div>
</td>
</tr>
<tr abp="1124" style="mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td abp="1125" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 191.35pt;" valign="top" width="255"><div abp="1126" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1127"><span abp="1128" lang="EN-GB"><span abp="1129" style="font-family: Calibri;"><span abp="1130" style="mso-spacerun: yes;"> </span>Total Bank<o:p abp="1131"></o:p></span></span></b></div>
</td>
<td abp="1132" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1133" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1134"><span abp="1135" lang="EN-GB"><span abp="1136" style="font-family: Calibri;">0.5<o:p abp="1137"></o:p></span></span></b></div>
</td>
<td abp="1138" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104"><div abp="1139" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1140"><span abp="1141" lang="EN-GB"><span abp="1142" style="font-family: Calibri;">52.2<o:p abp="1143"></o:p></span></span></b></div>
</td>
<td abp="1144" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.9pt;" valign="top" width="95"><div abp="1145" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1146"><span abp="1147" lang="EN-GB"><span abp="1148" style="font-family: Calibri;">1.0%<o:p abp="1149"></o:p></span></span></b></div>
</td>
</tr>
</tbody></table>
<div abp="1150">
</div>
<div abp="1151" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1152" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1153" style="font-family: Calibri;"><span abp="1154" style="mso-tab-count: 1;"> </span>Source: Barclays 2013 Presentation<o:p abp="1155"></o:p></span></span></div>
<div abp="1156">
</div>
<div abp="1157" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1158" lang="EN-GB"><span abp="1159" style="font-family: Calibri;">But this is not unique to Barclays as the poor results from RBS and
Lloyds show.</span></span></div>
<div abp="1160">
</div>
<div abp="1161" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1162" lang="EN-GB"><span abp="1163" style="font-family: Calibri;"><span abp="1164" style="mso-spacerun: yes;"> </span><span style="color: #cc0000;"><b abp="1165">Successive fund raisings
have strengthened Barclays balance sheet</b>:</span></span></span></div>
<div abp="1166">
</div>
<div abp="1167" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1168" lang="EN-GB"><span abp="1169" style="font-family: Calibri;"><span abp="1170" style="mso-spacerun: yes;"> </span>1. <b abp="1171">Core Tier 1 Capital
ratio is now 13.2% and equity/total assets 4.9%</b>, which more than meet the <b abp="1172">Basel
III</b> capital reserve requirements of a 6% minimum for Core Tier 1 Capital
and 4.5% for equity/assets.</span></span></div>
<div abp="1173">
</div>
<div abp="1174" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1175" lang="EN-GB"><span abp="1176" style="font-family: Calibri;">2. <b abp="1177">The Loan to Deposit Ratio,</b> a measure of liquidity, is down
from 110% in 2012 to 101% in 2013. And the Liquidity Pool exceeds wholesale
debts by 45 billion pounds.</span></span></div>
<div abp="1178">
</div>
<div abp="1179" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1180" lang="EN-GB"><span abp="1181" style="font-family: Calibri;">3. <b abp="1182">Standard &Poor's rates Barclays</b> long-term credit A-.</span></span></div>
<div abp="1183">
</div>
<div abp="1184" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1185" lang="EN-GB"><span abp="1186" style="font-family: Calibri;">4. <b abp="1187">Non-performing loan coverage</b> is up from 42% in 2012 to
47%. This leaves 9.7 billion pounds of non-performing loans that are not
provisioned for.</span></span></div>
<div abp="1188">
</div>
<div abp="1189" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1190" style="font-family: Calibri;"><b abp="1191"><span abp="1192" lang="EN-GB">But the bank's high cost to income ratio</span></b><span abp="1193" lang="EN-GB">
of 71% is responsible for its poor trading performance. By comparison, <b abp="1194">Santander's</b>
cost to income ratio is 50% and <b abp="1195">HSBC's</b> is 54%.</span></span></div>
<div abp="1196">
</div>
<div abp="1197" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1198" style="font-family: Calibri;"><b abp="1199"><span abp="1200" lang="EN-GB">Other negatives are</span></b><span abp="1201" lang="EN-GB">:</span></span></div>
<div abp="1202">
</div>
<div abp="1203" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1204" lang="EN-GB"><span abp="1205" style="font-family: Calibri;">1. E<b abp="1206">arnings per share</b> in the last three years average 5p,
which is much below the preceding 3-year average of 56p.</span></span></div>
<div abp="1207">
</div>
<div abp="1208" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1209" lang="EN-GB"><span abp="1210" style="font-family: Calibri;">2. Thanks to the rights issue, <b abp="1211">equity per share</b> is down from
414p in 2012 to 331p in 2013.</span></span></div>
<div abp="1212">
</div>
<div abp="1213" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1214" style="font-family: Calibri;"><span abp="1215" lang="EN-GB">3. <b abp="1216">The return on equity</b> (ROE) is a miserable 1%. Even after
substantial adjustments that management make*, ROE is still just 4.5%, half of
the prior year's adjusted ROE. *</span><span abp="1217" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">Items excluded from the adjusted measures are: the impact of
own credit; disposal of the investment in BlackRock, Inc.; the provision for
Payment Protection Insurance redress payments and claims management costs (PPI
redress); the provision for interest rate hedging products redress and claims
management costs (interest rate hedging products redress); and goodwill
impairment. Source: 2013 <b abp="1218">Barclays</b> Results.<o:p abp="1219"></o:p></span></span></div>
<div abp="1220">
</div>
<div abp="1221" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="1222"><span abp="1223" lang="EN-GB" style="color: #c00000;"><span abp="1224" style="font-family: Calibri;">Barclays plans to improve profits by: <o:p abp="1225"></o:p></span></span></b></div>
<div abp="1226">
</div>
<div abp="1227" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1228" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1229" style="mso-list: Ignore;">·<span abp="1230" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1231" dir="LTR"></span><span abp="1232" style="font-family: Calibri;"><b abp="1233"><span abp="1234" lang="EN-GB">Reducing
its cost base</span></b><span abp="1235" lang="EN-GB"> by 1.7 billion pounds by 2015 -
12,000 staff are to go. </span></span></div>
<div abp="1236">
</div>
<div abp="1237" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1238" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1239" style="mso-list: Ignore;">·<span abp="1240" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1241" dir="LTR"></span><span abp="1242" style="font-family: Calibri;"><b abp="1243"><span abp="1244" lang="EN-GB">Reducing
the number of UK branches</span></b><span abp="1245" lang="EN-GB">, perhaps by as much as a quarter,
and promoting online banking. <b abp="1246">Barclays</b> bought ING Direct UK in 2012, which
brought it 1.5 million customers.</span></span></div>
<div abp="1247">
</div>
<div abp="1248" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1249" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1250" style="mso-list: Ignore;">·<span abp="1251" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1252" dir="LTR"></span><span abp="1253" style="font-family: Calibri;"><b abp="1254"><span abp="1255" lang="EN-GB">Making
Barclays the 'Go-To' bank</span></b><span abp="1256" lang="EN-GB">. This was explained by
the new CEO, Anthony Jenkins, in the 2012 Annual Report.</span></span></div>
<div abp="1257">
</div>
<div abp="1258" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 35.45pt; text-align: justify;">
<span abp="1259" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1260" style="font-family: Calibri;"><span abp="1261" style="mso-spacerun: yes;"> </span>"Being the ‘Go-To’ bank means being the instinctive
partner of choice for anyone looking to do banking business, whether a small
business, first-time house buyer, or a large corporate undertaking a complex
merger or acquisition deal. Customers and clients will benefit from being
firmly in the centre of everything we do."<o:p abp="1262"></o:p></span></span></div>
<div abp="1263">
</div>
<div abp="1264" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 35.45pt; text-align: justify;">
<span abp="1265" lang="EN-GB"><span abp="1266" style="font-family: Calibri;">The CEO wants a "greater level of
customer and client satisfaction" and "more business from more
customers and clients." There is plenty to do. In the latest Which?
survey, <b abp="1267">Barclays</b>, together with <b abp="1268">RBS</b> and <b abp="1269">Santander</b>, trails
other banks in customer satisfaction.</span></span></div>
<div abp="1270">
</div>
<div abp="1271" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1272" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1273" style="mso-list: Ignore;">·<span abp="1274" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1275" dir="LTR"></span><span abp="1276" style="font-family: Calibri;"><b abp="1277"><span abp="1278" lang="EN-GB">Reducing
its operations in its main, loss-making Eurozone markets</span></b><span abp="1279" lang="EN-GB">, Spain, France and Italy.</span></span></div>
<div abp="1280">
</div>
<div abp="1281" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo3; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1282" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1283" style="mso-list: Ignore;">·<span abp="1284" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1285" dir="LTR"></span><span abp="1286" style="font-family: Calibri;"><b abp="1287"><span abp="1288" lang="EN-GB">Integrating
Absa Group Ltd, South Africa's largest bank</span></b><span abp="1289" lang="EN-GB"> which
it bought in 2005, into its other African businesses. And expand its operations
in Africa. </span></span></div>
<div abp="1290">
</div>
<div abp="1291" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1292" style="font-family: Calibri;"><b abp="1293"><span abp="1294" lang="EN-GB">At 264p, Barclays shares</span></b><span abp="1295" lang="EN-GB"> are valued at a
20% discount to net asset value, yield 2.4% and are on a PER (adjusted
earnings) of 17. If one assumes that the great bulk of nasty surprises is
behind Barclays, that the adjusted earnings of the last two years is a fair
base going forward, <b abp="1296">then my valuation model values the shares at around
220p.</b></span></span></div>
<div abp="1298" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1299" lang="EN-GB"><o:p abp="1300"><span abp="1301" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1302">
</div>
<div abp="1303" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="1304"><span abp="1305" lang="EN-GB" style="color: #c00000;"><span abp="1306" style="font-family: Calibri;">Investors will note:<o:p abp="1307"></o:p></span></span></b></div>
<div abp="1308">
</div>
<div abp="1309" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1310" lang="EN-GB"><span abp="1311" style="font-family: Calibri;">1. <b abp="1312">Barclays is essentially</b> a mid-sized investment bank linked
to a mid-sized retail bank with a good business in Barclaycard. Successive CEOs
have had difficulty managing both sides of the business.</span></span></div>
<div abp="1313">
</div>
<div abp="1314" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1315" lang="EN-GB"><span abp="1316" style="font-family: Calibri;">2. The <b abp="1317">present CEO is a long-term Barclays executive and he seems
out of his depth</b>. The bank has suffered from a high cost to income ratio
for years, and yet the planned cost cuts will not radically change <b abp="1318">Barclays</b>'
cost structure. And the bank continues to pay out large bonuses, which exceed
the planned cost cuts. So, although one key objective is to bring down
compensation payments, the compensation to revenue ratio increased from 39.6%
in 2012 to 43.2% in 2013 at the Investment Bank. </span></span></div>
<div abp="1319">
</div>
<div abp="1320" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1321" lang="EN-GB"><span abp="1322" style="font-family: Calibri;">The CEO, who has waived his bonus for the last two years,
understands that large bonuses are out of line when the bank is short of
capital. But he doesn't seem to be able to implement a more rational bonus
policy. Sooner or later the bank must bring in a team from outside the bank to
lead it out of the morass it is in.</span></span></div>
<div abp="1323">
</div>
<div abp="1324" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1325" lang="EN-GB"><span abp="1326" style="font-family: Calibri;">3. <b abp="1327">In the only large share transactions by directors in 2013</b>,
the CEO sold shares worth 2.9 million pounds at 308p a share in March, 4 months
prior to the announced rights issue. The CEO took up 1.1 million pounds worth
of shares at the rights issue price of 185p a share in October.</span></span></div>
<div abp="1328">
</div>
<div abp="1329" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1330" lang="EN-GB"><span abp="1331" style="font-family: Calibri;">4. <b abp="1332">Barclays </b>operates in regions with low political risk. </span></span></div>
<div abp="1333">
</div>
<div abp="1334" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1335" lang="EN-GB"><o:p abp="1336"><span abp="1337" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1338">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-74456741167452460022014-02-05T21:01:00.001+00:002014-02-05T21:01:16.674+00:00<div abp="179">
</div>
<h3 abp="180" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="181" lang="EN-GB"><span abp="182" style="color: #20124d;">Oh
the banks! (2) - Banco Santander<o:p abp="183"></o:p></span></span></h3>
<div abp="184">
</div>
<div abp="802" class="separator" style="clear: both; text-align: center;">
<a abp="803" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiH6iT1CkY9Hg5oQLjeMJ5sZ2-yxJdkTGIZS757VL2eyDVV6BrXmb13mc002tcENHjEkkY_1e5JoX4lqfAuEcmMqomZnwoWuoVYbh4fjw4_7rIPtwQsVkyOAChYTGdfPIJjPzTTEZwyFFs/s1600/220px-Banco_Santander_-_Rua_das_Laranjeiras,_n%C2%BA_32.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="804" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiH6iT1CkY9Hg5oQLjeMJ5sZ2-yxJdkTGIZS757VL2eyDVV6BrXmb13mc002tcENHjEkkY_1e5JoX4lqfAuEcmMqomZnwoWuoVYbh4fjw4_7rIPtwQsVkyOAChYTGdfPIJjPzTTEZwyFFs/s1600/220px-Banco_Santander_-_Rua_das_Laranjeiras,_n%C2%BA_32.jpg" /></a></div>
<div abp="185" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="217" lang="EN-GB"><span abp="218" style="font-family: Calibri;">Santander
branch in Rio de Janeiro, courtesy Wikipedia</span></span></div>
<div abp="219">
</div>
<div abp="220" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="221" style="font-family: Calibri;"><b abp="222"><span abp="223" lang="EN-GB"></span></b></span> </div>
<div abp="220" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="221" style="font-family: Calibri;"><b abp="222"><span abp="223" lang="EN-GB">Five years have elapsed since the financial crisis and</span></b><span abp="224" lang="EN-GB"> it is time to consider investing in banks again. For a further
discussion and a review of <b abp="225">HSBC</b> see <a abp="226" href="http://thejoyfulinvestor.blogspot.co.uk/2014/01/ohthe-banks-1-andhsbc-holdings-plc.html"><span abp="227" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2014/01/ohthe-banks-1-andhsbc-holdings-plc.html</span></a>
</span></span></div>
<div abp="228">
</div>
<div abp="229" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="230" style="font-family: Calibri;"><b abp="231"><span abp="232" lang="EN-GB">When a bank has sidestepped the traps</span></b><span abp="233" lang="EN-GB">
that brought many to the edge of default, its shares yield 7.7% net of
withholding taxes and it sells at an 18% discount to net asset value, it is
worth a look. </span></span></div>
<div abp="234">
</div>
<div abp="235" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="236" style="font-family: Calibri;"><b abp="237"><span abp="238" lang="EN-GB">Emilio Botín, the 79-year old Chairman of Banco Santander</span></b><span abp="239" lang="EN-GB">, is one of the very few senior bankers who have survived the
financial crisis with their reputation intact. <b abp="240">The Madrid based bank</b>
managed to profit hugely from its stake in <b abp="241">ABN Amro</b> that sank both its
partners in the acquisition, the <b abp="242">Royal Bank of Scotland (RBS)</b> and <b abp="243">Fortis
Bank</b>. Throughout the financial crisis, <b abp="244">Santander</b> continued to be
profitable. Thanks to the Bank of Spain, which prohibited off-balance sheet
items and advised the banks not to hold subprime mortgages, <b abp="245">Santander</b>
did not have undeclared liabilities or subprimes to provide for. And it is one
of the few large, international banks that have not suffered major fines and
damages for unethical practices. (It did provide 538 million pounds for PPI miss
selling from the Abbey National and Alliance and Leicester banks which it subsequently
acquired.) </span></span></div>
<div abp="246">
</div>
<div abp="247" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="248" lang="EN-GB"><span abp="249" style="font-family: Calibri;">Today <b abp="250">Santander</b> has a market capitalisation of 60 billion
pounds, making it the largest European bank after <b abp="251">HSBC.<o:p abp="252"></o:p></b></span></span></div>
<div abp="253">
</div>
<div abp="254" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="255" style="font-family: Calibri;"><b abp="256"><span abp="257" lang="EN-GB">It has helped that Santander has concentrated on retail and
wholesale banking</span></b><span abp="258" lang="EN-GB"> for 96% of its net revenue. If it
was tempted by the profits bonanza of investment banking leading up to the
financial crisis, it resisted it. Fund management and insurance make up the
remaining 4% of its revenues.</span></span></div>
<div abp="259">
</div>
<div abp="260" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="261" style="font-family: Calibri;"><b abp="262"><span abp="263" lang="EN-GB">But it is Santander's acquisition of ABN Amro that illustrates the
quality of its management. Santander</span></b><span abp="264" lang="EN-GB"> sold on the
Italian bank it had acquired from <b abp="265">ABN Amro</b>, Banco Antonvenate, to Monte
de Paschi di Siena for €9 billion. The price was agreed only one month after
the takeover. This realised an implied 36% profit of €2.4 billion for <b abp="266">Santander.</b>
<b abp="267">Santander</b> merged the other main unit of <b abp="268">ABN Amro</b> it acquired, Brazil's
Banco Real, into <b abp="269">Banco Santander Brazil</b> to create the third largest bank
in that country. Brazil is now the largest single profit centre in the <b abp="270">Santander
</b>group.</span></span></div>
<div abp="271">
</div>
<div abp="272" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="273" style="font-family: Calibri;"><b abp="274"><span abp="275" lang="EN-GB">Although the bank is controlled from a 600-acre site called
Santander Group City,</span></b><span abp="276" lang="EN-GB"> just outside Madrid, <b abp="277">Santander
</b>is far from dependent on its Spanish operations. And <b abp="278">Santander's
operations are in politically stable countries</b>. Its main emerging market
risk is concentrated in the three most stable large Latin American states
(Brazil, Mexico and Chile), while the remainder is concentrated in the European
Union and the USA.</span></span></div>
<div abp="279">
</div>
<table abp="280" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 19.6pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="281">
<tr abp="282" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="283" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="284" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="285"><span abp="286" lang="EN-GB"><span abp="287" style="font-family: Calibri;">Business
by region %<o:p abp="288"></o:p></span></span></b></div>
</td>
<td abp="289" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="290" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="291"><span abp="292" lang="EN-GB"><span abp="293" style="font-family: Calibri;">By Attributable
Profits<o:p abp="294"></o:p></span></span></b></div>
</td>
<td abp="295" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="296" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="297"><span abp="298" lang="EN-GB"><span abp="299" style="font-family: Calibri;">By Total Assets<o:p abp="300"></o:p></span></span></b></div>
</td>
<td abp="301" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="302" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="303"><span abp="304" lang="EN-GB"><span abp="305" style="font-family: Calibri;">By Customer Loans<o:p abp="306"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="307" style="mso-yfti-irow: 1;">
<td abp="308" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="309" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="310"><span abp="311" lang="EN-GB"><span abp="312" style="font-family: Calibri;">Brazil,
Mexico, Chile<o:p abp="313"></o:p></span></span></b></div>
</td>
<td abp="314" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="315" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="316" lang="EN-GB"><span abp="317" style="font-family: Calibri;">39%</span></span></div>
</td>
<td abp="318" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="319" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="320" lang="EN-GB"><span abp="321" style="font-family: Calibri;">19%</span></span></div>
</td>
<td abp="322" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="323" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="324" lang="EN-GB"><span abp="325" style="font-family: Calibri;">17%</span></span></div>
</td>
</tr>
<tr abp="326" style="mso-yfti-irow: 2;">
<td abp="327" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="328" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="329"><span abp="330" lang="EN-GB"><span abp="331" style="font-family: Calibri;">UK<o:p abp="332"></o:p></span></span></b></div>
</td>
<td abp="333" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="334" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="335" lang="EN-GB"><span abp="336" style="font-family: Calibri;">17%</span></span></div>
</td>
<td abp="337" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="338" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="339" lang="EN-GB"><span abp="340" style="font-family: Calibri;">29%</span></span></div>
</td>
<td abp="341" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="342" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="343" lang="EN-GB"><span abp="344" style="font-family: Calibri;">35%</span></span></div>
</td>
</tr>
<tr abp="345" style="mso-yfti-irow: 3;">
<td abp="346" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="347" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="348"><span abp="349" lang="EN-GB"><span abp="350" style="font-family: Calibri;">Spain<o:p abp="351"></o:p></span></span></b></div>
</td>
<td abp="352" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="353" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="354" lang="EN-GB"><span abp="355" style="font-family: Calibri;">7%</span></span></div>
</td>
<td abp="356" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="357" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="358" lang="EN-GB"><span abp="359" style="font-family: Calibri;">25%</span></span></div>
</td>
<td abp="360" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="361" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="362" lang="EN-GB"><span abp="363" style="font-family: Calibri;">24%</span></span></div>
</td>
</tr>
<tr abp="364" style="mso-yfti-irow: 4;">
<td abp="365" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="366" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="367"><span abp="368" lang="EN-GB"><span abp="369" style="font-family: Calibri;">Other
Europe*<o:p abp="370"></o:p></span></span></b></div>
</td>
<td abp="371" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="372" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="373" lang="EN-GB"><span abp="374" style="font-family: Calibri;">19%</span></span></div>
</td>
<td abp="375" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="376" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="377" lang="EN-GB"><span abp="378" style="font-family: Calibri;">15%</span></span></div>
</td>
<td abp="379" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="380" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="381" lang="EN-GB"><span abp="382" style="font-family: Calibri;">16%</span></span></div>
</td>
</tr>
<tr abp="383" style="mso-yfti-irow: 5;">
<td abp="384" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="385" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="386"><span abp="387" lang="EN-GB"><span abp="388" style="font-family: Calibri;">USA<o:p abp="389"></o:p></span></span></b></div>
</td>
<td abp="390" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="391" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="392" lang="EN-GB"><span abp="393" style="font-family: Calibri;">10%</span></span></div>
</td>
<td abp="394" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="395" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="396" lang="EN-GB"><span abp="397" style="font-family: Calibri;">5%</span></span></div>
</td>
<td abp="398" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="399" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="400" lang="EN-GB"><span abp="401" style="font-family: Calibri;">6%</span></span></div>
</td>
</tr>
<tr abp="402" style="mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td abp="403" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 163pt;" valign="top" width="217">
<div abp="404" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="405"><span abp="406" lang="EN-GB"><span abp="407" style="font-family: Calibri;">Other<o:p abp="408"></o:p></span></span></b></div>
</td>
<td abp="409" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="410" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="411" lang="EN-GB"><span abp="412" style="font-family: Calibri;">8%</span></span></div>
</td>
<td abp="413" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.95pt;" valign="top" width="104">
<div abp="414" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="415" lang="EN-GB"><span abp="416" style="font-family: Calibri;">7%</span></span></div>
</td>
<td abp="417" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104">
<div abp="418" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="419" lang="EN-GB"><span abp="420" style="font-family: Calibri;">2%</span></span></div>
</td>
</tr>
</tbody></table>
<div abp="421">
</div>
<div abp="422" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="423" style="font-family: Calibri;"><span abp="424" lang="EN-GB"><span abp="425" style="mso-tab-count: 1;"> </span></span><span abp="426" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">*Mainly Germany and Poland
- source 2013 4th quarter report of Santander<o:p abp="427"></o:p></span></span></div>
<div abp="428">
</div>
<div abp="429" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="430" style="font-family: Calibri;"><b abp="431"><span abp="432" lang="EN-GB">Yet its Spanish domicile and operation have dogged the bank.</span></b><span abp="433" lang="EN-GB"> Credit agencies award <b abp="434">Santander</b> the same long-term credit
rating as its sovereign. So the bank's credit rating has declined with the
sovereign from AA in 2008 to BBB today (S&P). Returns from its large
banking presence in Spain - it has the largest share of the Spanish market -
have been meagre, and it has had to absorb large non-performing loans from its
Spanish portfolio.</span></span></div>
<div abp="435">
</div>
<div abp="436" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="437" style="font-family: Calibri;"><b abp="438"><span abp="439" lang="EN-GB">The London listing of Santander's shares </span></b><span abp="440" lang="EN-GB">(in blue) tends to move closely with the Ibex 35 Index of leading
Spanish companies (in green), where most of its shares are held. The divergence
with the FTSE 100 (in red) is particularly marked since the mid 2010 bailout of
Greece with the concomitant Euro crisis. </span></span></div>
<div abp="441">
</div>
<div abp="806" class="separator" style="clear: both; text-align: center;">
<a abp="807" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju7CAp9dPn4ZBfZXgN1_zd0oDQT2ILuzeOdTUG0QTd5_dE0ljjvh9BKFiKUG3DWIUCrVS6C-RRh8tKlybzEHRYOu_xYBhkM-kM3fspucd3Ma58hm6n7TNz0KpmAcoKJdoBt7UuuRGQ5gQ/s1600/Santander+price+graph+vs+Ibex.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="808" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju7CAp9dPn4ZBfZXgN1_zd0oDQT2ILuzeOdTUG0QTd5_dE0ljjvh9BKFiKUG3DWIUCrVS6C-RRh8tKlybzEHRYOu_xYBhkM-kM3fspucd3Ma58hm6n7TNz0KpmAcoKJdoBt7UuuRGQ5gQ/s1600/Santander+price+graph+vs+Ibex.png" height="176" width="400" /></a></div>
<div abp="442" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="443" style="font-family: Calibri;"><span abp="444" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="445" alt="Santander price graph vs Ibex.png" id="Picture_x0020_1" o:spid="_x0000_i1026" style="height: 187.5pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75">
<v:imagedata abp="446" o:title="Santander price graph vs Ibex" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.png">
</v:imagedata></v:shape></span><span abp="447" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">Graph
courtesy of Yahoo, click to enlarge</span></span></div>
<div abp="448">
</div>
<div abp="449" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="450" style="font-family: Calibri;"><b abp="451"><span abp="452" lang="EN-GB">Since Santander's €7.2 billion rights issue in 2008</span></b><span abp="453" lang="EN-GB">, the bank has improved its balance sheet without further capital
fund raising. This has been achieved by selling shares in its Brazilian and
Mexican ventures, by shrinking its assets in Spain and by retaining earnings.
The result is that the balance sheet is much stronger than it was at the end of
2008. Consider:</span></span></div>
<div abp="454">
</div>
<div abp="455" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="456" lang="EN-GB"><span abp="457" style="font-family: Calibri;">1.<span abp="458" style="mso-spacerun: yes;"> </span><b abp="459">The loan to deposit
(LTD) ratio is down from 150% to 109%</b>.This makes the bank much less
dependent on external financing. In its problematic Spanish market its LTD
ratio is down to 96%.</span></span></div>
<div abp="460">
</div>
<div abp="461" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="462" lang="EN-GB"><span abp="463" style="font-family: Calibri;">2.<span abp="464" style="mso-spacerun: yes;"> </span><b abp="465">The bank's Core Tier 1 Capital
ratio</b> <b abp="466">has increased from 7.6% to 11.7%</b> and equity as a percent of
assets is up from 5.5% to 6.4%. Both ratios are far superior to the <b abp="467">Basel III</b>
capital reserve requirements <span abp="468" style="mso-spacerun: yes;"> </span>of a 6%
minimum for Core Tier 1 Capital and 4.5% for equity/assets.</span></span></div>
<div abp="469">
</div>
<div abp="470" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="471" lang="EN-GB"><span abp="472" style="font-family: Calibri;">3.<span abp="473" style="mso-spacerun: yes;"> </span>The Spanish problem
property book is shrinking and now accounts for 1.2% of net assets.</span></span></div>
<div abp="474">
</div>
<div abp="475" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="476" lang="EN-GB"><span abp="477" style="font-family: Calibri;">4. <b abp="478">An area of concern is falling non-performing loan (NPL)
coverage</b>, now 62% of NPLs compared to 91% in 2008. At December 2013, €42
billion of NPLs were covered by €26 billion of provisions leaving €16 billion
not provided for. While €6 billion of unprovisioned NPLs are covered by
property (land and buildings), this still leaves a possible hole of €10
billion.<span abp="479" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="480">
</div>
<div abp="481" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="482" style="font-family: Calibri;"><b abp="483"><span abp="484" lang="EN-GB">At the present price
of 512p, shares in Santander</span></b><span abp="485" lang="EN-GB"> are on an historical
PE ratio of 15 and yield 7.7% net of the 21% withholding tax in Spain. Fifteen
percent is recoverable from the UK-Spain Tax Treaty and the remaining 6% can be
recouped via Spain's tax form 210, which can be done through <b abp="486">Banco Santander</b>,
though shareholders must prove UK residence. The shares sell at an 18% discount
to net asset value, which puts <b abp="487">Santander</b> on a 30% discount relative to <b abp="488">HSBC</b>.</span></span></div>
<div abp="490" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="491"><span abp="492" lang="EN-GB"><o:p abp="493"><span abp="494" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="495">
</div>
<div abp="496" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="497" style="font-family: Calibri;"><b abp="498"><span abp="499" lang="EN-GB">As with many other banks, the challenge for Santander</span></b><span abp="500" lang="EN-GB"> is to regain profitability and a suitable return on assets. Since
2008 its efficiency ratio (costs/net revenues) has declined from 42% to 50%,
though it is still among the best. Return on equity has declined from 17.5% in
2008 to 5.4% today. </span></span></div>
<div abp="501">
</div>
<div abp="502" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="503" lang="EN-GB"><span abp="504" style="font-family: Calibri;">The Chairman, Emilio Botín, perhaps to be expected, is upbeat:</span></span></div>
<div abp="506" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="507" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="508" style="font-family: Calibri;"><span abp="509" style="mso-spacerun: yes;"> </span>"Our shareholders
can expect from <b abp="510">Banco Santander</b> the performance of a bank with a
comfortable capital base, a solid balance sheet, recurring revenues, 187,000
professional employees, the best in international banking, and considerable
potential to increase profits as the global economic situation returns to
normal." (From the 2012 Annual Report)</span></span></div>
<div abp="513" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="514" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="515"><span abp="516" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="517">
</div>
<div abp="518" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="519" lang="EN-GB"><span abp="520" style="font-family: Calibri;">And on the benefits of
the financial crisis (Interview with <i abp="521">The Banker</i>, January 2013):</span></span></div>
<div abp="523" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="524" lang="EN-GB"><o:p abp="525"><span abp="526" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="527">
</div>
<div abp="528" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="529" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="530" style="font-family: Calibri;">"One advantage for us is that a lot of banks have
disappeared during the crisis and there will be fewer competitors. We used to
have some 60 banks in Spain, including savings banks. At the end of the crisis
we may have about 10. There will still be a lot of competition but not as much
as there was."<o:p abp="531"></o:p></span></span></div>
<div abp="532">
<span abp="534" lang="EN-GB"><o:p abp="535"><span abp="536" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="537">
</div>
<div abp="538" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="539" style="font-family: Calibri;"><b abp="540"><span abp="541" lang="EN-GB">Sr Botín, in his
presentation of the 2013 results of 30 January 2014</span></b><span abp="542" lang="EN-GB">,
affirms that the bank will continue with its high dividend payout and expects
improved results for 2014. Concerns that its high dividend is unaffordable are
countered by the chairman, who notes that 89% of shareholders opt for the scrip
dividend in lieu of cash.</span></span></div>
<div abp="546" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="547" lang="EN-GB"><o:p abp="548"><span abp="549" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="550">
</div>
<div abp="551" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="552" style="font-family: Calibri;"><b abp="553"><span abp="554" lang="EN-GB">Santander</span></b><span abp="555" lang="EN-GB"> expects to realise cost savings of €1.5 billion by 2015 from its
merger of Banesto's operations into <b abp="556">Santander's</b> in Spain. But the key to
a recovery in profits will be the recovery of its major developed markets -
Spain in particular - and a return to growth in Brazil. </span></span></div>
<div abp="558" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="559" lang="EN-GB"><o:p abp="560"><span abp="561" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="562">
</div>
<div abp="563" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="564" style="font-family: Calibri;"><b abp="565"><span abp="566" lang="EN-GB">Taking a conservative
view of Santander</span></b><span abp="567" lang="EN-GB">, my valuation model values <b abp="568">Santander</b>
shares at about the current price of 512p. This is based on the average
earnings per share for the last 5 years with no increase in earnings, equity
per share or return on equity for the 2014-2018 period, all discounted at 10.9%
(3.9% SLXX + 2% operating risk + 5% margin of safety). </span></span></div>
<div abp="570" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="571" lang="EN-GB"><o:p abp="572"><span abp="573" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="574">
</div>
<div abp="575" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="576"><span abp="577" lang="EN-GB"><span abp="578" style="font-family: Calibri;">Investors may take
the view that they can sit on the shares and wait for an improvement in
Santander's markets while reaping a net dividend of 7.7%. And they will note
that the bank's share price (in blue) is low compared to the past and compared
to HSBC (in green):<o:p abp="579"></o:p></span></span></b></div>
<div abp="580">
</div>
<div abp="581" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="582"><span abp="583" lang="EN-GB"><o:p abp="584"><span abp="585" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="586">
</div>
<div abp="864" class="separator" style="clear: both; text-align: center;">
<a abp="865" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvr1m1GWWG8Ujae9m5-fPwcOiaX1DJ7pFzuspnD_snIV8c5-TSIonvDM_BjDv-DFCFPW88g5wnzEOu-FXDNiaA_get7c49DlMBF-2VB-jyJbhz8l22T6Fa-kUOwFH8WLlCfW3wl6YtBPU/s1600/santander+price+graph+vs+HSBC+2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="866" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhvr1m1GWWG8Ujae9m5-fPwcOiaX1DJ7pFzuspnD_snIV8c5-TSIonvDM_BjDv-DFCFPW88g5wnzEOu-FXDNiaA_get7c49DlMBF-2VB-jyJbhz8l22T6Fa-kUOwFH8WLlCfW3wl6YtBPU/s1600/santander+price+graph+vs+HSBC+2.png" height="173" width="400" /></a></div>
<div abp="587" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="588"><span abp="589" style="font-family: Calibri;"><span abp="590" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="591" alt="santander price graph vs HSBC 2.png" id="Picture_x0020_2" o:spid="_x0000_i1025" style="height: 185.25pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75">
<v:imagedata abp="592" o:title="santander price graph vs HSBC 2" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></v:shape></span><span abp="593" lang="EN-GB"><o:p abp="594"></o:p></span></span></b></div>
<div abp="595">
</div>
<div abp="596" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="597" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="598" style="font-family: Calibri;">Graph
courtesy Yahoo, click to enlarge<o:p abp="599"></o:p></span></span></div>
<div abp="600">
</div>
<div abp="601" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="602"><span abp="603" lang="EN-GB"><o:p abp="604"><span abp="605" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="606">
</div>
<div abp="607" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="608"><span abp="609" lang="EN-GB"><span abp="610" style="font-family: Calibri;">There are further
considerations:</span></span></b></div>
<div abp="613" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="614" lang="EN-GB"><o:p abp="615"><span abp="616" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="617">
</div>
<div abp="618" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="619" lang="EN-GB"><span abp="620" style="font-family: Calibri;">1. <b abp="621">Succession.</b> Sr
Botín is 79 and he has been chairman for 26 years, overseeing the bank's growth
from a regional Spanish bank to a major international bank. Both his father and
grandfather were chairmen of <b abp="622">Santander</b>. His likely replacement is his
daughter, Ana Patricia Botín, who is head of <b abp="623">Santander UK</b>. She has the
right background in banking and the work ethic of her father (both rise at 6
am). But this is a big role to fill.</span></span></div>
<div abp="625" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="626" lang="EN-GB"><o:p abp="627"><span abp="628" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="629">
</div>
<div abp="630" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="631" lang="EN-GB"><span abp="632" style="font-family: Calibri;">2. <b abp="633">Shareholdings</b>.
Successive share issues have left the Botín family with less than 2% of the
bank's equity. However, their confidence in the bank is backed by share
purchases worth 90 million Euros in recent years. </span></span></div>
<div abp="635" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="636" lang="EN-GB"><o:p abp="637"><span abp="638" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="639">
</div>
<div abp="640" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="641" lang="EN-GB"><span abp="642" style="font-family: Calibri;">3. <b abp="643">Spain's economy</b>.
While it appears that Spain is beginning to grow again (the OECD forecasts a
weak recovery for 2014 and 2015), non-performing loans continue to hit <b abp="644">Santander's
</b>profits. There is the risk that another shock in the Eurozone could
increase the default rate.</span></span></div>
<div abp="646" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="647" lang="EN-GB"><o:p abp="648"><span abp="649" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="650">
</div>
<div abp="651" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="652" lang="EN-GB"><span abp="653" style="font-family: Calibri;">4. <b abp="654">The dividend</b>,
which is 150% of 2014's earnings. While the chairman seems determined to
continue with the 60 cent dividend, this could change either by force of
circumstances or by a less committed (or stubborn) successor. However, a cut in
dividend might reassure investors who are concerned about continuing loan
losses in Spain.</span></span></div>
<div abp="655">
</div>
<div abp="656" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="657" lang="EN-GB"><o:p abp="658"><span abp="659" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="660">
</div>
<div abp="661" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="662" lang="EN-GB"><o:p abp="663"><span abp="664" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="665">
</div>
<div abp="666" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="667" lang="EN-GB"><o:p abp="668"><span abp="669" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="670">
</div>
<div abp="671" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="672" lang="EN-GB"><o:p abp="673"><span abp="674" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="675">
</div>
<div abp="676" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="677" lang="EN-GB"><o:p abp="678"><span abp="679" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="680">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com1tag:blogger.com,1999:blog-6123577473607160262.post-77884697998668431602014-01-30T15:55:00.000+00:002014-01-30T19:54:12.934+00:00<div abp="179">
</div>
<h3 abp="180" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="181" lang="EN-GB"><span abp="182" style="color: #20124d;">Oh
the banks! (1)<o:p abp="183"></o:p></span></span></h3>
<div abp="184">
</div>
<h4 abp="185" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="186" lang="EN-GB"><span abp="187" style="color: #660000;">And
HSBC Holdings PLC<o:p abp="188"></o:p></span></span></h4>
<div abp="189">
</div>
<div abp="190" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span abp="191" lang="EN-GB"><o:p abp="192"><span abp="193" style="font-family: Calibri;"> </span></o:p></span><br />
<div abp="1213" class="separator" style="clear: both; text-align: center;">
<span abp="193" style="font-family: Calibri;"><a abp="1214" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWcjzmHvn3kvsS-ZY5ZzK6nS5Ac8NjanaSHxrsHMvbM4ZcXzPT5aJOkScG7u9O-9ljoLNU0f89rWss3wozWVRYu464vzAICAeZWjAZZZI2PiXz5HBdJgRTwCRyPSwdJ3BmDh-Ysp4ZXz4/s1600/800px-Northern_Rock_Queue.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1215" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjWcjzmHvn3kvsS-ZY5ZzK6nS5Ac8NjanaSHxrsHMvbM4ZcXzPT5aJOkScG7u9O-9ljoLNU0f89rWss3wozWVRYu464vzAICAeZWjAZZZI2PiXz5HBdJgRTwCRyPSwdJ3BmDh-Ysp4ZXz4/s1600/800px-Northern_Rock_Queue.jpg" height="240" width="320" /></a></span></div>
<br />
<div abp="196">
</div>
<div abp="220" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="221" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="222" style="font-family: Calibri;">Run
on Northern Rock, 14 September 2007, courtesy Wikipedia<o:p abp="223"></o:p></span></span></div>
<div abp="224">
</div>
<div abp="225" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="226" lang="EN-GB"><o:p abp="227"><span abp="228" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="230" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="231" style="font-family: Calibri;"><b abp="232"><span abp="233" lang="EN-GB">Everyone in the land was shocked by the collapse of three of
Britain's largest banks</span></b><span abp="234" lang="EN-GB"> in late 2008. And every
investor in the stock market either saw the value of his bank shares crash by
as much as 98% or thanked his lucky stars that he had the foresight or luck not
to be invested in them. At one point, shares in <b abp="235">RBS, HBOS, LLoyds</b> and <b abp="236">Barclays</b>
had all lost more than 90% from their previous highs.</span></span></div>
<div abp="237">
</div>
<div abp="238" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="239" style="font-family: Calibri;"><b abp="240"><span abp="241" lang="EN-GB">Peak support for the banking system amounted to 1.16 trillion pounds
(79.4% of 2008 national income)</span></b><span abp="242" lang="EN-GB">, of which 133
billion was in cash<b abp="243"> </b>according to the National Audit Office. Today, the
taxpayer is still 115 billion pounds cash out of pocket. <span abp="244" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="245">
</div>
<div abp="246" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="247" style="font-family: Calibri;"><b abp="248"><span abp="249" lang="EN-GB">Subsequently our banks have been heavily fined</span></b><span abp="250" lang="EN-GB"> for miss-selling payment protection insurance to their customers,
rigging interest rates, money laundering for drug cartels and breaking the
sanctions on Iran. <span abp="251" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="252">
</div>
<div abp="253" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="254" style="font-family: Calibri;"><b abp="255"><span abp="256" lang="EN-GB">Memories of dramatic events can influence our behaviour for
generations</span></b><span abp="257" lang="EN-GB">. The German fear of inflation harks
back to almost 3 years of hyperinflation in the early 1920s. One dollar was
then worth 4.2 trillion German marks. It is understandable that British investors
are wary of the banks. Indeed both <b abp="258">RBS</b> and <b abp="259">Lloyds</b> offer little
for the investor; they pay no dividend and the shares held by the government,
via UK Financial Investments Ltd, overhang the market. <b abp="260">RBS</b> continues to
surprise observers with its ability to lose vast sums of money, this year to
the tune of 8 billion pounds.</span></span></div>
<div abp="261">
</div>
<div abp="262" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="263" lang="EN-GB"><span abp="264" style="font-family: Calibri;">However, the banking sector is too large to ignore and investors
will recall that the banks will be among the first entities to benefit from a
sustained recovery in their markets. Four large banks listed on the London
stock exchange, <b abp="265">HSBC, Barclays, Santander and Standard Chartered</b>, are
worth a look.</span></span></div>
<div abp="266">
</div>
<div abp="267" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="268" lang="EN-GB"><span abp="269" style="font-family: Calibri;">Comparing the banks is a useful exercise. </span></span></div>
<div abp="270">
</div>
<table abp="271" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="272">
<tr abp="273" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="274" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="275" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="276"><i abp="277"><span abp="278" lang="EN-GB"><span abp="279" style="font-family: Calibri;">1. Valuation<o:p abp="280"></o:p></span></span></i></b></div>
</td>
<td abp="281" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="282" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="283"><span abp="284" lang="EN-GB"><span abp="285" style="font-family: Calibri;">HSBC<o:p abp="286"></o:p></span></span></b></div>
</td>
<td abp="287" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="288" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="289"><span abp="290" lang="EN-GB"><span abp="291" style="font-family: Calibri;">Barclays<o:p abp="292"></o:p></span></span></b></div>
</td>
<td abp="293" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="294" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="295"><span abp="296" lang="EN-GB"><span abp="297" style="font-family: Calibri;">Santander<o:p abp="298"></o:p></span></span></b></div>
</td>
<td abp="299" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="300" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="301"><span abp="302" lang="EN-GB"><span abp="303" style="font-family: Calibri;">Standard Chartered<o:p abp="304"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="305" style="mso-yfti-irow: 1;">
<td abp="306" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="307" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="308"><span abp="309" lang="EN-GB"><span abp="310" style="font-family: Calibri;">Share price<o:p abp="311"></o:p></span></span></b></div>
</td>
<td abp="312" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="313" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="314" lang="EN-GB"><span abp="315" style="font-family: Calibri;">635p</span></span></div>
</td>
<td abp="316" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="317" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="318" lang="EN-GB"><span abp="319" style="font-family: Calibri;">273p</span></span></div>
</td>
<td abp="320" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="321" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="322" lang="EN-GB"><span abp="323" style="font-family: Calibri;">519p</span></span></div>
</td>
<td abp="324" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="325" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="326" lang="EN-GB"><span abp="327" style="font-family: Calibri;">1301p</span></span></div>
</td>
</tr>
<tr abp="328" style="mso-yfti-irow: 2;">
<td abp="329" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="330" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="331"><span abp="332" lang="EN-GB"><span abp="333" style="font-family: Calibri;">Share price/net assets<o:p abp="334"></o:p></span></span></b></div>
</td>
<td abp="335" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="336" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="337" lang="EN-GB"><span abp="338" style="font-family: Calibri;">1.16</span></span></div>
</td>
<td abp="339" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="340" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="341" lang="EN-GB"><span abp="342" style="font-family: Calibri;">0.75</span></span></div>
</td>
<td abp="343" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="344" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="345" lang="EN-GB"><span abp="346" style="font-family: Calibri;">0.82</span></span></div>
</td>
<td abp="347" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="348" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="349" lang="EN-GB"><span abp="350" style="font-family: Calibri;">1.12</span></span></div>
</td>
</tr>
<tr abp="351" style="mso-yfti-irow: 3;">
<td abp="352" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="353" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="354"><span abp="355" lang="EN-GB"><span abp="356" style="font-family: Calibri;">5 yr PE ratio (1)<o:p abp="357"></o:p></span></span></b></div>
</td>
<td abp="358" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="359" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="360" lang="EN-GB"><span abp="361" style="font-family: Calibri;">17</span></span></div>
</td>
<td abp="362" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="363" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="364" lang="EN-GB"><span abp="365" style="font-family: Calibri;">24</span></span></div>
</td>
<td abp="366" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="367" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="368" lang="EN-GB"><span abp="369" style="font-family: Calibri;">10</span></span></div>
</td>
<td abp="370" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="371" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="372" lang="EN-GB"><span abp="373" style="font-family: Calibri;">12</span></span></div>
</td>
</tr>
<tr abp="374" style="mso-yfti-irow: 4;">
<td abp="375" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="376" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="377"><span abp="378" lang="EN-GB"><span abp="379" style="font-family: Calibri;">Net dividend yield<o:p abp="380"></o:p></span></span></b></div>
</td>
<td abp="381" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="382" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="383" lang="EN-GB"><span abp="384" style="font-family: Calibri;">4.7%</span></span></div>
</td>
<td abp="385" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="386" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="387" lang="EN-GB"><span abp="388" style="font-family: Calibri;">2.2%</span></span></div>
</td>
<td abp="389" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="390" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="391" lang="EN-GB"><span abp="392" style="font-family: Calibri;">9.6%</span></span></div>
</td>
<td abp="393" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="394" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="395" lang="EN-GB"><span abp="396" style="font-family: Calibri;">4.2%</span></span></div>
</td>
</tr>
<tr abp="397" style="mso-yfti-irow: 5;">
<td abp="398" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="399" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="400"><span abp="401" lang="EN-GB"><span abp="402" style="font-family: Calibri;"><span abp="403" style="mso-spacerun: yes;"> </span>Return on
Equity (2)<o:p abp="404"></o:p></span></span></b></div>
</td>
<td abp="405" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="406" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="407" lang="EN-GB"><span abp="408" style="font-family: Calibri;">8.3%</span></span></div>
</td>
<td abp="409" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="410" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="411" lang="EN-GB"><span abp="412" style="font-family: Calibri;">1.4%</span></span></div>
</td>
<td abp="413" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="414" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="415" lang="EN-GB"><span abp="416" style="font-family: Calibri;">5.4%</span></span></div>
</td>
<td abp="417" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="418" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="419" lang="EN-GB"><span abp="420" style="font-family: Calibri;">10.4%</span></span></div>
</td>
</tr>
<tr abp="421" style="mso-yfti-irow: 6;">
<td abp="422" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="423" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="424"><i abp="425"><span abp="426" lang="EN-GB"><span abp="427" style="font-family: Calibri;">2. Balance sheet<o:p abp="428"></o:p></span></span></i></b></div>
<div abp="429" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="430"><i abp="431"><span abp="432" lang="EN-GB"><o:p abp="433"><span abp="434" style="font-family: Calibri;"> </span></o:p></span></i></b></div>
</td>
<td abp="435" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="436" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="437" lang="EN-GB"><o:p abp="438"><span abp="439" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
<td abp="440" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="441" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="442" lang="EN-GB"><o:p abp="443"><span abp="444" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
<td abp="445" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="446" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="447" lang="EN-GB"><o:p abp="448"><span abp="449" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
<td abp="450" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="451" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="452" lang="EN-GB"><o:p abp="453"><span abp="454" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
</tr>
<tr abp="455" style="mso-yfti-irow: 7;">
<td abp="456" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="457" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="458"><span abp="459" lang="EN-GB"><span abp="460" style="font-family: Calibri;">CoreTier 1 capital/assets<o:p abp="461"></o:p></span></span></b></div>
</td>
<td abp="462" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="463" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="464" lang="EN-GB"><span abp="465" style="font-family: Calibri;">13.3%</span></span></div>
</td>
<td abp="466" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="467" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="468" lang="EN-GB"><span abp="469" style="font-family: Calibri;">11.1%</span></span></div>
</td>
<td abp="470" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="471" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="472" lang="EN-GB"><span abp="473" style="font-family: Calibri;">11.7%</span></span></div>
</td>
<td abp="474" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="475" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="476" lang="EN-GB"><span abp="477" style="font-family: Calibri;">13.0%</span></span></div>
</td>
</tr>
<tr abp="478" style="mso-yfti-irow: 8;">
<td abp="479" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="480" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="481"><span abp="482" lang="EN-GB"><span abp="483" style="font-family: Calibri;">Equity/assets<o:p abp="484"></o:p></span></span></b></div>
</td>
<td abp="485" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="486" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="487" lang="EN-GB"><span abp="488" style="font-family: Calibri;">6.4%</span></span></div>
</td>
<td abp="489" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="490" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="491" lang="EN-GB"><span abp="492" style="font-family: Calibri;">3.3%</span></span></div>
</td>
<td abp="493" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="494" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="495" lang="EN-GB"><span abp="496" style="font-family: Calibri;">6.4%</span></span></div>
</td>
<td abp="497" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="498" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="499" lang="EN-GB"><span abp="500" style="font-family: Calibri;">7.0%</span></span></div>
</td>
</tr>
<tr abp="501" style="mso-yfti-irow: 9;">
<td abp="502" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="503" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="504"><span abp="505" lang="EN-GB"><span abp="506" style="font-family: Calibri;">Cash/total assets<o:p abp="507"></o:p></span></span></b></div>
</td>
<td abp="508" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="509" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="510" lang="EN-GB"><span abp="511" style="font-family: Calibri;">6.2%</span></span></div>
</td>
<td abp="512" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="513" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="514" lang="EN-GB"><span abp="515" style="font-family: Calibri;">7,3%</span></span></div>
</td>
<td abp="516" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="517" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="518" lang="EN-GB"><span abp="519" style="font-family: Calibri;">9.3%</span></span></div>
</td>
<td abp="520" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="521" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="522" lang="EN-GB"><span abp="523" style="font-family: Calibri;">8.9%</span></span></div>
</td>
</tr>
<tr abp="524" style="mso-yfti-irow: 10;">
<td abp="525" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="526" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="527"><span abp="528" lang="EN-GB"><span abp="529" style="font-family: Calibri;">Loans/ deposits<o:p abp="530"></o:p></span></span></b></div>
</td>
<td abp="531" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="532" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="533" lang="EN-GB"><span abp="534" style="font-family: Calibri;">74%</span></span></div>
</td>
<td abp="535" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="536" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="537" lang="EN-GB"><span abp="538" style="font-family: Calibri;">102%</span></span></div>
</td>
<td abp="539" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="540" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="541" lang="EN-GB"><span abp="542" style="font-family: Calibri;">108%</span></span></div>
</td>
<td abp="543" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="544" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="545" lang="EN-GB"><span abp="546" style="font-family: Calibri;">77%</span></span></div>
</td>
</tr>
<tr abp="547" style="mso-yfti-irow: 11;">
<td abp="548" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="549" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="550"><span abp="551" lang="EN-GB"><span abp="552" style="font-family: Calibri;">NPL coverage (3)<o:p abp="553"></o:p></span></span></b></div>
</td>
<td abp="554" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="555" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="556" lang="EN-GB"><span abp="557" style="font-family: Calibri;">41%</span></span></div>
</td>
<td abp="558" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="559" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="560" lang="EN-GB"><span abp="561" style="font-family: Calibri;">52.8%</span></span></div>
</td>
<td abp="562" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="563" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="564" lang="EN-GB"><span abp="565" style="font-family: Calibri;">72.6%</span></span></div>
</td>
<td abp="566" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="567" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="568" lang="EN-GB"><span abp="569" style="font-family: Calibri;">66%</span></span></div>
</td>
</tr>
<tr abp="570" style="mso-yfti-irow: 12;">
<td abp="571" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="572" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="573"><i abp="574"><span abp="575" lang="EN-GB"><span abp="576" style="font-family: Calibri;">3. Other<o:p abp="577"></o:p></span></span></i></b></div>
<div abp="578" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="579"><i abp="580"><span abp="581" lang="EN-GB"><o:p abp="582"><span abp="583" style="font-family: Calibri;"> </span></o:p></span></i></b></div>
</td>
<td abp="584" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="585" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="586" lang="EN-GB"><o:p abp="587"><span abp="588" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
<td abp="589" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="590" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="591" lang="EN-GB"><o:p abp="592"><span abp="593" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
<td abp="594" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="595" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="596" lang="EN-GB"><o:p abp="597"><span abp="598" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
<td abp="599" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="600" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="601" lang="EN-GB"><o:p abp="602"><span abp="603" style="font-family: Calibri;"> </span></o:p></span></div>
</td>
</tr>
<tr abp="604" style="mso-yfti-irow: 13;">
<td abp="605" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="606" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="607"><span abp="608" lang="EN-GB"><span abp="609" style="font-family: Calibri;">Efficiency (4)<o:p abp="610"></o:p></span></span></b></div>
</td>
<td abp="611" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="612" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="613" lang="EN-GB"><span abp="614" style="font-family: Calibri;">53.5%</span></span></div>
</td>
<td abp="615" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="616" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="617" lang="EN-GB"><span abp="618" style="font-family: Calibri;">78%</span></span></div>
</td>
<td abp="619" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="620" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="621" lang="EN-GB"><span abp="622" style="font-family: Calibri;">49.9%</span></span></div>
</td>
<td abp="623" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="624" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="625" lang="EN-GB"><span abp="626" style="font-family: Calibri;">51.4%</span></span></div>
</td>
</tr>
<tr abp="627" style="mso-yfti-irow: 14;">
<td abp="628" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="629" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="630"><span abp="631" lang="EN-GB"><span abp="632" style="font-family: Calibri;">Long-term credit rating<o:p abp="633"></o:p></span></span></b></div>
</td>
<td abp="634" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="635" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="636" lang="EN-GB"><span abp="637" style="font-family: Calibri;">A+</span></span></div>
</td>
<td abp="638" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="639" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="640" lang="EN-GB"><span abp="641" style="font-family: Calibri;">A</span></span></div>
</td>
<td abp="642" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="643" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="644" lang="EN-GB"><span abp="645" style="font-family: Calibri;">BBB</span></span></div>
</td>
<td abp="646" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="647" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="648" lang="EN-GB"><span abp="649" style="font-family: Calibri;">A+</span></span></div>
</td>
</tr>
<tr abp="650" style="mso-yfti-irow: 15; mso-yfti-lastrow: yes;">
<td abp="651" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 118.8pt;" valign="top" width="158"><div abp="652" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="653"><span abp="654" lang="EN-GB"><span abp="655" style="font-family: Calibri;">Market capitalization <o:p abp="656"></o:p></span></span></b></div>
</td>
<td abp="657" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78pt;" valign="top" width="104"><div abp="658" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="659" lang="EN-GB"><span abp="660" style="font-family: Calibri;">122bn pounds</span></span></div>
</td>
<td abp="661" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.85pt;" valign="top" width="94"><div abp="662" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="663" lang="EN-GB"><span abp="664" style="font-family: Calibri;">43bn pounds</span></span></div>
</td>
<td abp="665" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 78.1pt;" valign="top" width="104"><div abp="666" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="667" lang="EN-GB"><span abp="668" style="font-family: Calibri;">60bn pounds</span></span></div>
</td>
<td abp="669" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 70.75pt;" valign="top" width="94"><div abp="670" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="671" lang="EN-GB"><span abp="672" style="font-family: Calibri;">31bn pounds</span></span></div>
</td>
</tr>
</tbody></table>
<div abp="673">
</div>
<div abp="674" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span abp="675" style="font-family: Calibri;"><b abp="676"><span abp="677" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">(1)</span></b><span abp="678" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">
Average earnings per share 2008-12. <b abp="679">(2)</b> Most recent period of EPS/NAVPS.
<b abp="680">(3)</b> Provisions/non-performing loans %. <b abp="681">(4)</b> Cost/revenue.<o:p abp="682"></o:p></span></span></div>
<div abp="683">
</div>
<div abp="684" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="685" lang="EN-GB"><span abp="686" style="font-family: Calibri;">While banks, by the nature of their business, can be quantitatively
analysed to exhaustion, investors will note:</span></span></div>
<div abp="687">
</div>
<div abp="688" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="689" lang="EN-GB"><span abp="690" style="font-family: Calibri;">1. <b abp="691">Lessons from the financial crisis include,</b></span></span></div>
<div abp="692">
</div>
<div abp="693" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="694" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="695" style="mso-list: Ignore;">·<span abp="696" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="697" dir="LTR"></span><span abp="698" style="font-family: Calibri;"><b abp="699"><span abp="700" lang="EN-GB">Banks
can report profits when they are on the verge of bankruptcy</span></b><span abp="701" lang="EN-GB">. Unlike trading companies, bank Income statements only indicate,
broadly, how the business is going. In February 2008, <b abp="702">RBS </b>reported a 10
billion pounds profit for 2007, when in reality it was bust.</span></span></div>
<div abp="703">
</div>
<div abp="704" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="705" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="706" style="mso-list: Ignore;">·<span abp="707" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="708" dir="LTR"></span><span abp="709" style="font-family: Calibri;"><b abp="710"><span abp="711" lang="EN-GB">As
banks are highly leveraged, a</span></b><span abp="712" lang="EN-GB">ny analysis must start
with the bank's balance sheet, though even the Chairman or the Regulator might
not understand what the trillion or half trillion in derivative assets mean. For
investors too this is an opaque account. While liquidity, reserves, provisions
and capital ratios are all useful indicators, none is definitive. The CEO of
the Financial Services Authority informed the public that <b abp="713">Northern Rock</b>
was solvent two days before it ceased trading.</span></span></div>
<div abp="714">
</div>
<div abp="715" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="716" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="717" style="mso-list: Ignore;">·<span abp="718" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="719" dir="LTR"></span><span abp="720" style="font-family: Calibri;"><b abp="721"><span abp="722" lang="EN-GB">Credit
ratings</span></b><span abp="723" lang="EN-GB">, vitally important for banks, can turn on a
sixpence. The <b abp="724">Cooperative Bank</b> lost six notches in its credit rating in
one day last year, and then promptly defaulted on its obligations. </span></span></div>
<div abp="725">
<span abp="727" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="728" style="mso-list: Ignore;"><span abp="729" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";"></span></span></span> </div>
<div abp="725">
<span abp="727" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="728" style="mso-list: Ignore;"><span abp="729" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="730" dir="LTR"></span><span abp="731" lang="EN-GB"><span abp="732" style="font-family: Calibri;"></span></span></div>
<div abp="725">
<span abp="731" lang="EN-GB"><span abp="732" style="font-family: Calibri;">2. <b abp="733">Political
risk</b> can only be assessed by reviewing the geographic location of assets
and income.</span></span><br />
</div>
<div abp="734">
</div>
<div abp="735" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="736" lang="EN-GB"><span abp="737" style="font-family: Calibri;">3. Bankers are adept at bypassing rules that they find inconvenient.
<b abp="738">Off balance sheet items</b> and the valuation of assets, especially
derivatives, are a cause of serious risks. It is worth scrutinising management's
record. </span></span></div>
<div abp="739">
</div>
<div abp="740" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="741" lang="EN-GB"><span abp="742" style="font-family: Calibri;">4. <b abp="743">Some banking businesses are more volatile than others are</b>.
And volatility in combination with highly leveraged balance sheets means more
risk. </span></span></div>
<div abp="744">
</div>
<div abp="745" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="746" lang="EN-GB"><span abp="747" style="font-family: Calibri;">5. <b abp="748">Some bankers will do anything to earn a big bonus.</b> They risk
all on acquisitions and speculative investments, as <b abp="749">RBS</b>, <b abp="750">Barclays,</b>
<b abp="751">HBOS and the Cooperative Bank </b>did. They underestimate risk for
investments that offered higher returns (Collaterised Debt Obligations et al). They
manipulate earnings per share by not making sufficient provisions for bad loans
- a common practice. And, if necessary, they disseminate false hopes to the
investing public to successfully make a rights issue as both <b abp="752">RBS</b> and <b abp="753">HBOS</b>
did in 2008. Investors should never forget what they have done in the recent
past.</span></span></div>
<div abp="754">
</div>
<div abp="755" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="756" lang="EN-GB"><span abp="757" style="font-family: Calibri;">----------------------------------------------------------------------------------------------------</span></span></div>
<div abp="758">
</div>
<h3 abp="759" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="761" lang="EN-GB"><span style="color: #660000;">HSBC
Holdings PLC<o:p abp="763"></o:p></span></span></h3>
<div abp="764">
</div>
<div abp="765" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="766" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="767" alt="Hong Kong from Kowloon, by author..jpg" id="Picture_x0020_3" o:spid="_x0000_i1026" style="height: 260.25pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="768" style="font-family: Calibri;">
<v:imagedata abp="769" o:title="Hong Kong from Kowloon, by author." src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.jpg">
</v:imagedata></span></v:shape></span><br />
<div abp="1236" class="separator" style="clear: both; text-align: center;">
<span abp="768" style="font-family: Calibri;"><a abp="1237" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVmD6vboIkalsUwnAG6blBRy8jQv8YxzcHNZBUxXLV9IvqCE96i4W-GUY4dw2LT40cMGWQaiKJ9CeLm9dT2_1lcV-fkTIgz6r4br_YISu1UHRT1igG-RchuxtUJq9gz655JV6sTf17wXw/s1600/Hong+Kong+from+Kowloon,+by+author..jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1238" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVmD6vboIkalsUwnAG6blBRy8jQv8YxzcHNZBUxXLV9IvqCE96i4W-GUY4dw2LT40cMGWQaiKJ9CeLm9dT2_1lcV-fkTIgz6r4br_YISu1UHRT1igG-RchuxtUJq9gz655JV6sTf17wXw/s1600/Hong+Kong+from+Kowloon,+by+author..jpg" height="196" width="320" /></a></span></div>
<br />
<div abp="770">
</div>
<div abp="771" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="772" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="773" style="font-family: Calibri;">View
to Hong Kong from Kowloon, by the author<o:p abp="774"></o:p></span></span></div>
<div abp="775">
</div>
<div abp="776" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="777" lang="EN-GB"></span> </div>
<div abp="781" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="782" lang="EN-GB"><span abp="783" style="font-family: Calibri;">The<b abp="784"> Hong Kong and Shanghai Banking Corporation (HSBC)</b> is,
with <b abp="785">Wells Fargo</b>, the largest bank by assets and market capitalisation
outside China. And Hong Kong is still its most profitable market. Of course size
is not a guarantee of success. Six of the world's ten largest banks in 2008,
led by <b abp="786">RBS</b>, had to be rescued by governments or by other institutions
during the financial crisis. But size does enable a bank to gain returns to
scale from IT, marketing, provide a broad service for multinationals and access
new markets. </span></span></div>
<div abp="787">
</div>
<div abp="788" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="789" style="font-family: Calibri;"><b abp="790"><span abp="791" lang="EN-GB">According to Interbrand, HSBC</span></b><span abp="792" lang="EN-GB"> and <b abp="793">JP
Morgan</b> are by far the most valuable brands in banking. <b abp="794">HSBC</b> is
widely spread geographically, though dependent on Asia Pacific for its earnings
(data from<span abp="795" style="mso-spacerun: yes;"> </span>HSBC's 2012 Annual Report). </span></span></div>
<div abp="796">
</div>
<table abp="797" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 19.6pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="798">
<tr abp="799" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="800" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="801" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="802"><span abp="803" lang="EN-GB"><span abp="804" style="font-family: Calibri;">%
Business<o:p abp="805"></o:p></span></span></b></div>
</td>
<td abp="806" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="807" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="808"><span abp="809" lang="EN-GB"><span abp="810" style="font-family: Calibri;">By Risk Weighted
Assets<o:p abp="811"></o:p></span></span></b></div>
</td>
<td abp="812" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="813" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="814"><span abp="815" lang="EN-GB"><span abp="816" style="font-family: Calibri;">By Operating Profit<o:p abp="817"></o:p></span></span></b></div>
</td>
<td abp="818" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="819" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="820"><span abp="821" lang="EN-GB"><span abp="822" style="font-family: Calibri;">By Gross loans and
advances to customers<o:p abp="823"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="824" style="mso-yfti-irow: 1;">
<td abp="825" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="826" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="827"><span abp="828" lang="EN-GB"><span abp="829" style="font-family: Calibri;">North
America<o:p abp="830"></o:p></span></span></b></div>
</td>
<td abp="831" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="832" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="833" lang="EN-GB"><span abp="834" style="font-family: Calibri;">33.5%</span></span></div>
</td>
<td abp="835" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="836" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="837" lang="EN-GB"><span abp="838" style="font-family: Calibri;">5.4%</span></span></div>
</td>
<td abp="839" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="840" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="841" lang="EN-GB"><span abp="842" style="font-family: Calibri;">14.3%</span></span></div>
</td>
</tr>
<tr abp="843" style="mso-yfti-irow: 2;">
<td abp="844" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="845" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="846"><span abp="847" lang="EN-GB"><span abp="848" style="font-family: Calibri;">Europe<o:p abp="849"></o:p></span></span></b></div>
</td>
<td abp="850" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="851" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="852" lang="EN-GB"><span abp="853" style="font-family: Calibri;">28.4%</span></span></div>
</td>
<td abp="854" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="855" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="856" lang="EN-GB"><span abp="857" style="font-family: Calibri;">14.5%</span></span></div>
</td>
<td abp="858" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="859" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="860" lang="EN-GB"><span abp="861" style="font-family: Calibri;">46.2%*</span></span></div>
</td>
</tr>
<tr abp="862" style="mso-yfti-irow: 3;">
<td abp="863" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="864" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="865"><span abp="866" lang="EN-GB"><span abp="867" style="font-family: Calibri;">Rest
of Asia Pacific<o:p abp="868"></o:p></span></span></b></div>
</td>
<td abp="869" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="870" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="871" lang="EN-GB"><span abp="872" style="font-family: Calibri;">18.2%</span></span></div>
</td>
<td abp="873" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="874" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="875" lang="EN-GB"><span abp="876" style="font-family: Calibri;">35.4%</span></span></div>
</td>
<td abp="877" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="878" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="879" lang="EN-GB"><span abp="880" style="font-family: Calibri;">13.7%</span></span></div>
</td>
</tr>
<tr abp="881" style="mso-yfti-irow: 4;">
<td abp="882" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="883" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="884"><span abp="885" lang="EN-GB"><span abp="886" style="font-family: Calibri;">Hong
Kong<o:p abp="887"></o:p></span></span></b></div>
</td>
<td abp="888" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="889" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="890" lang="EN-GB"><span abp="891" style="font-family: Calibri;">15.1%</span></span></div>
</td>
<td abp="892" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="893" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="894" lang="EN-GB"><span abp="895" style="font-family: Calibri;">33.9%</span></span></div>
</td>
<td abp="896" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="897" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="898" lang="EN-GB"><span abp="899" style="font-family: Calibri;">17.2%</span></span></div>
</td>
</tr>
<tr abp="900" style="mso-yfti-irow: 5;">
<td abp="901" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="902" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="903"><span abp="904" lang="EN-GB"><span abp="905" style="font-family: Calibri;">Other<o:p abp="906"></o:p></span></span></b></div>
</td>
<td abp="907" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="908" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="909" lang="EN-GB"><span abp="910" style="font-family: Calibri;">4.8%</span></span></div>
</td>
<td abp="911" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="912" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="913" lang="EN-GB"><span abp="914" style="font-family: Calibri;">10.8%</span></span></div>
</td>
<td abp="915" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="916" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="917" lang="EN-GB"><span abp="918" style="font-family: Calibri;">8.6%</span></span></div>
</td>
</tr>
<tr abp="919" style="mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td abp="920" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.5pt;" valign="top" width="135"><div abp="921" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="922"><span abp="923" lang="EN-GB"><span abp="924" style="font-family: Calibri;"><span abp="925" style="mso-spacerun: yes;"> </span>US dollar value<o:p abp="926"></o:p></span></span></b></div>
</td>
<td abp="927" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 116.6pt;" valign="top" width="155"><div abp="928" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="929" lang="EN-GB"><span abp="930" style="font-family: Calibri;">$521bn</span></span></div>
</td>
<td abp="931" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 106.2pt;" valign="top" width="142"><div abp="932" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="933" lang="EN-GB"><span abp="934" style="font-family: Calibri;">$18.6bn</span></span></div>
</td>
<td abp="935" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 92.1pt;" valign="top" width="123"><div abp="936" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="937" lang="EN-GB"><span abp="938" style="font-family: Calibri;">$1,014bn</span></span></div>
</td>
</tr>
</tbody></table>
<div abp="939">
</div>
<div abp="940" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="941"><span abp="942" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="943" style="font-family: Calibri;">Source: 9 months data from HSBC *Of which 77% is in the UK<o:p abp="944"></o:p></span></span></b></div>
<div abp="945">
</div>
<div abp="946" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="947" style="font-family: Calibri;"><b abp="948"><span abp="949" lang="EN-GB">The failure of the American unit stands out. HSBC </span></b><span abp="950" lang="EN-GB">bought Household Finance Corporation, the second largest subprime
lender in the US, in 2002. <b abp="951">HSBC</b> stopped Household's trading in 2009
while providing $16.3 billion in bad loans and a $10.6 billion write-down on
its purchase. The bank immediately followed this with an $18 billion rights
issue, which saved it from insolvency. </span></span></div>
<div abp="952">
</div>
<div abp="953" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="954" style="font-family: Calibri;"><b abp="955"><span abp="956" lang="EN-GB">Today the risk is more obviously political and centred on East Asia</span></b><span abp="957" lang="EN-GB">. Japan and China dispute ownership of the Senkaku Islands. Japan,
along with some other South East Asian nations, disputes China's new Air
Defence Zone and its Economic Zone in the South China Sea. The war of words
could spread to military confrontation. And there is always the threat of a
possible conflict between North and South Korea. Kim Il Un, the new leader of
the North, seems to be an unbalanced individual. If measured by gross loans and
advances<b abp="958">, HSBC</b> has 21% of its balance sheet at risk in this region.</span></span></div>
<div abp="959">
</div>
<div abp="960" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="961" style="font-family: Calibri;"><b abp="962"><span abp="963" lang="EN-GB">At the March 2009 stock market bottom</span></b><span abp="964" lang="EN-GB">, <b abp="965">HSBC</b>
shares were 'only' 63% below the previous high. Since late 2009, the shares
have traded in a fairly narrow band. </span></span></div>
<div abp="966">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh7NryoqX4fqDIgfwhp3X2Lx8iT2Wrd9yB84JpQ5IEL8mVPYPeGEoQR0mXCqedYdC_ItvZY1efrTdCSD7feizjlIcIeEhZ477xOaumNIqwmYEHm9zEg-hA4URwycILpoMDO3-u_D-wZiNQ/s1600/HSBC+share+price+Yahoo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh7NryoqX4fqDIgfwhp3X2Lx8iT2Wrd9yB84JpQ5IEL8mVPYPeGEoQR0mXCqedYdC_ItvZY1efrTdCSD7feizjlIcIeEhZ477xOaumNIqwmYEHm9zEg-hA4URwycILpoMDO3-u_D-wZiNQ/s1600/HSBC+share+price+Yahoo.png" height="180" width="400" /></a></div>
<div abp="967" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="968" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="969" alt="HSBC share price Yahoo.png" id="Picture_x0020_2" o:spid="_x0000_i1025" style="height: 192pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span abp="970" style="font-family: Calibri;">
<v:imagedata abp="971" o:title="HSBC share price Yahoo" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></span></v:shape></span></div>
<div abp="972">
</div>
<div abp="973" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="974" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="975" style="font-family: Calibri;">Graph
courtesy Yahoo, click to enlarge<o:p abp="976"></o:p></span></span></div>
<div abp="977">
</div>
<div abp="978" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="979" lang="EN-GB"><o:p abp="980"><span abp="981" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="982">
</div>
<div abp="983" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="984" style="font-family: Calibri;"><b abp="985"><span abp="986" lang="EN-GB">But HSBC has made
progress</span></b><span abp="987" lang="EN-GB"> since the rights issue that repaired its
balance sheet. Consider:</span></span></div>
<div abp="989" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="990" lang="EN-GB"><o:p abp="991"><span abp="992" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="993">
</div>
<div abp="994" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="995" lang="EN-GB"><span abp="996" style="font-family: Calibri;">1. <b abp="997">The balance sheet
is strengthened</b>. <b abp="998">Core Tier 1 capital</b> is up from 9.4% in 2009 to
13.3%, while the <b abp="999">equity to asset ratio</b> has increased from 4.7% to 6.4%. And
<b abp="1000">loans to deposits</b> are down to 74% from 77%. <b abp="1001">However, the one ratio
that has deteriorated is Non-performing-loan coverage</b>, which is down from
73% to 41%. This is a concern as gross impaired loans have increased from $28
billion in 2009 to $39 billion in 2012, or from $8 billion to $22 billion after
impairment charges.</span></span></div>
<div abp="1003" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1004" lang="EN-GB"><o:p abp="1005"><span abp="1006" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1007">
</div>
<div abp="1008" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1009" lang="EN-GB"><span abp="1010" style="font-family: Calibri;">2. <b abp="1011">HSBC's net asset
value per share has increased by 28% since 2009</b>, yet the share price is no
higher now than when the bank reported 2009's result early in 2010. The bank's
shares trade on a price that is just 16% more than its net asset value. </span></span></div>
<div abp="1013" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1014" lang="EN-GB"><o:p abp="1015"><span abp="1016" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1017">
</div>
<div abp="1018" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1019" lang="EN-GB"><span abp="1020" style="font-family: Calibri;">3. <b abp="1021">Earnings per share
has more than doubled in this period</b>, bringing the bank's historical PE
ratio down to 14.</span></span></div>
<div abp="1023" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1024" lang="EN-GB"><o:p abp="1025"><span abp="1026" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1027">
</div>
<div abp="1028" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1029" lang="EN-GB"><span abp="1030" style="font-family: Calibri;">4. <b abp="1031">HSBC has increased
the dividend by one-third</b> since 2009, so that the shares currently yield
4.7%.</span></span></div>
<div abp="1033" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1034" lang="EN-GB"><o:p abp="1035"><span abp="1036" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1037">
</div>
<div abp="1038" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1039" lang="EN-GB"><span abp="1040" style="font-family: Calibri;">5. <b abp="1041">Return on equity </b>is
up from 5.1% in 2009 to 8.3% in 2012.</span></span></div>
<div abp="1043" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1044" lang="EN-GB"><o:p abp="1045"><span abp="1046" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1047">
</div>
<div abp="1048" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1049" style="font-family: Calibri;"><b abp="1050"><span abp="1051" lang="EN-GB">My valuation model</span></b><span abp="1052" lang="EN-GB">, which assumes no great political risks, values <b abp="1053">HSBC</b> shares
at about 735p.* This is 17% above the present price of HSBC shares, which some
investors might consider a sufficient margin of safety.</span></span></div>
<div abp="1055" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1056" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1057" style="font-family: Calibri;">*EPS growth 10% per annum, equity per share growth 6%, return
on equity 9%, average PE ratio 13.5, dividend payout 60%, all discounted at
10.9% (SLXX 3.9% + 2% operating risk + 5% margin of safety) for 2013 to 2017.</span></span></div>
<div abp="1060" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1061" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1062"><span abp="1063" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1064">
</div>
<div abp="1065" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1066" style="font-family: Calibri;"><b abp="1067"><span abp="1068" lang="EN-GB">Investors will want
to consider</span></b><span abp="1069" lang="EN-GB">:</span></span></div>
<div abp="1071" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1072" lang="EN-GB"><o:p abp="1073"><span abp="1074" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1075">
</div>
<div abp="1076" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1077" lang="EN-GB"><span abp="1078" style="font-family: Calibri;">1.<span abp="1079" style="mso-spacerun: yes;"> </span><b abp="1080">The risk of a political crisis</b>,
perhaps leading to war, in East Asia, and the consequences for a bank that has
so much invested in the region.</span></span></div>
<div abp="1082" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1083" lang="EN-GB"><o:p abp="1084"><span abp="1085" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1086">
</div>
<div abp="1087" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1088" lang="EN-GB"><span abp="1089" style="font-family: Calibri;">2. <b abp="1090">The $22 billion of
impaired loans that are not covered by provisions</b>. This represents 12% of
net assets and it is equivalent to a full year's pre-tax profits.</span></span></div>
<div abp="1092" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1093" lang="EN-GB"><o:p abp="1094"><span abp="1095" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1096">
</div>
<div abp="1097" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1098" lang="EN-GB"><span abp="1099" style="font-family: Calibri;">2. <b abp="1100">Directors have
overwhelmingly sold shares in the last 12 months</b>. Major sales total 1.5
million pounds at prices ranging between 710p and 726p a share. One director
bought 78,000 pounds of shares at 703p.</span></span></div>
<div abp="1102" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1103" lang="EN-GB"><o:p abp="1104"><span abp="1105" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1106">
</div>
<div abp="1107" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1108" lang="EN-GB"><span abp="1109" style="font-family: Calibri;">4. <b abp="1110">HSBC </b>faces
legal action in several US mortgage securitisation cases. The money at risk has
not been quantified. As regulators continue to scrutinise the activity of banks
in recent years, HSBC might face further large fines and damages. </span></span></div>
<div abp="1111">
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-48915359713564399562014-01-23T11:02:00.000+00:002014-01-23T11:02:04.394+00:00<div abp="293">
</div>
<h3 abp="294" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="295" lang="EN-GB"><span abp="296" style="color: #20124d;">What
to do when a leopard changes its spots?</span></span><span abp="297" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="298"></o:p></span></h3>
<div abp="299">
</div>
<h4 abp="300" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="301" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="302" style="color: #660000;">And MITIE Group PLC<o:p abp="303"></o:p></span></span></h4>
<div abp="304">
</div>
<div abp="707" class="separator" style="clear: both; text-align: center;">
<a abp="708" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMqjdLH-rMKilCDXMP7_u8htEsI6aR5KbVX8reIQK-lKsXEwG7DKpEnOkGbg6xxetCpfOpx8S3p34f41W1XOqlfT9cEhGOFPdxOCzE79fQUfyWuqPjn1w_EA4zAD0Y7j15mdpMmAjSR8Q/s1600/200px-Dionysos_mosaic_from_Pella.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="709" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMqjdLH-rMKilCDXMP7_u8htEsI6aR5KbVX8reIQK-lKsXEwG7DKpEnOkGbg6xxetCpfOpx8S3p34f41W1XOqlfT9cEhGOFPdxOCzE79fQUfyWuqPjn1w_EA4zAD0Y7j15mdpMmAjSR8Q/s1600/200px-Dionysos_mosaic_from_Pella.jpg" /></a></div>
<div abp="307" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="308" style="font-family: Calibri;"><span abp="309" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shapetype abp="310" coordsize="21600,21600" filled="f" id="_x0000_t75" o:preferrelative="t" o:spt="75" path="m@4@5l@4@11@9@11@9@5xe" stroked="f"><v:stroke abp="311" joinstyle="miter"><v:formulas abp="312"><v:f abp="313" eqn="if lineDrawn pixelLineWidth 0"><v:f abp="314" eqn="sum @0 1 0"><v:f abp="315" eqn="sum 0 0 @1"><v:f abp="316" eqn="prod @2 1 2"><v:f abp="317" eqn="prod @3 21600 pixelWidth"><v:f abp="318" eqn="prod @3 21600 pixelHeight"><v:f abp="319" eqn="sum @0 0 1"><v:f abp="320" eqn="prod @6 1 2"><v:f abp="321" eqn="prod @7 21600 pixelWidth"><v:f abp="322" eqn="sum @8 21600 0"><v:f abp="323" eqn="prod @7 21600 pixelHeight"><v:path abp="325" gradientshapeok="t" o:connecttype="rect" o:extrusionok="f"><v:shape abp="327" alt="200px-Dionysos_mosaic_from_Pella.jpg" id="Picture_x0020_0" o:spid="_x0000_i1027" style="height: 139.5pt; mso-wrap-style: square; visibility: visible; width: 2in;" type="#_x0000_t75"><v:imagedata abp="328" o:title="200px-Dionysos_mosaic_from_Pella" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image001.jpg"></v:imagedata></v:shape></v:path></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:formulas></v:stroke></v:shapetype></span><span abp="329" lang="EN-US" style="mso-ansi-language: EN-US;"></span></span> </div>
<div abp="332" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="333" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="334" style="font-family: Calibri;">4th century
BC Greek mosaic of a leopard and Dionysius, courtesy Wikipedia<o:p abp="335"></o:p></span></span></div>
<div abp="336">
</div>
<div abp="337" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="338" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="339" style="font-family: Calibri;">Companies diverge from their main
business for many reasons. Often they are defensive, which does not bode well
for their shareholders. <o:p abp="340"></o:p></span></span></div>
<div abp="341">
</div>
<div abp="342" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="343" style="font-family: Calibri;"><b abp="344"><span abp="345" lang="EN-GB">Imperial Chemical Industries (ICI)</span></b><span abp="346" lang="EN-GB"> <b abp="347">was
once the largest company in the British Empire</b>. </span><span abp="348" lang="EN-US" style="mso-ansi-language: EN-US;">In 1984, it became the first British company to
report more than 1 billion pounds in profit.<o:p abp="349"></o:p></span></span></div>
<div abp="350">
</div>
<div abp="351" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="352" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="353" style="font-family: Calibri;">In 1993, under pressure from a
corporate raider, <b abp="354">ICI</b> divested its thriving pharmaceutical and
agrochemical businesses into <b abp="355">Zeneca</b>. <b abp="356">Zeneca</b> then merged with a
Swedish pharmaceutical company to form <b abp="357">AstraZeneca</b>. <b abp="358">ICI'</b>s
remaining business was dependent on bulk chemicals. Competitors had moved
production to low-cost areas and <b abp="359">ICI</b> found itself in a low margin and
cyclical business with little prospect of growth.<o:p abp="360"></o:p></span></span></div>
<div abp="361">
</div>
<div abp="362" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="363" style="font-family: Calibri;"><b abp="364"><span abp="365" lang="EN-US" style="mso-ansi-language: EN-US;">A year after the divestment, ICI</span></b><span abp="366" lang="EN-US" style="mso-ansi-language: EN-US;"> decided to sell its bulk chemical
businesses and move to specialty chemical businesses and paints, where margins
were higher. It imported a new CEO from Unilever, who between 1997 and 2002
sold and bought more than fifty businesses. These included concerns making
flavours and fragrances, paints, electronic chemicals and starches. This
strategy came at a high cost. Some analysts argued that <b abp="367">ICI</b> paid too
much for some of the businesses it bought and received too little for some of
the businesses it sold. To pay down the resulting debt, the company sold some
of the ventures it had bought. Then because they needed to raise more capital, <b abp="368">ICI
</b>made a deeply discounted rights issue. Management had lost control. <b abp="369">ICI</b>,
once known for its technical skills, lost the direction and calculated <span abp="370" style="mso-spacerun: yes;"> </span>risk-taking required to innovate.<o:p abp="371"></o:p></span></span></div>
<div abp="372">
</div>
<div abp="373" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="374" style="font-family: Calibri;"><b abp="375"><span abp="376" lang="EN-US" style="mso-ansi-language: EN-US;">ICI</span></b><span abp="377" lang="EN-US" style="mso-ansi-language: EN-US;">'s share price dropped from 788p in January
1994 to 220p in January 2005. Shareholders who stayed the course received 670p
a share from <b abp="378">Akzo Nobel</b>, which acquired <b abp="379">ICI</b> in June 2008. <o:p abp="380"></o:p></span></span></div>
<div abp="381">
</div>
<div abp="382" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="383" style="font-family: Calibri;"><span abp="384" lang="EN-US" style="mso-ansi-language: EN-US;">Today another large British company
is losing its main thriving business. For years, <b abp="385">Vodafone's</b> 45% stake in
<b abp="386">Verizon Wireless</b> has disguised the poor performance of its other
businesses. See </span><span abp="387" lang="EN-GB"><a abp="388" href="http://thejoyfulinvestor.blogspot.co.uk/2013/05/marriageand-divorce-corporate-style_15.html"><span abp="389" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="390" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013/05/marriageand-divorce-corporate-style_15.html</span></span></a></span><span abp="391" lang="EN-US" style="mso-ansi-language: EN-US;">. The loss of <b abp="392">Wireless</b> will
have great consequences for the company.<o:p abp="393"></o:p></span></span></div>
<div abp="394">
</div>
<div abp="395" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="396" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="397" style="font-family: Calibri;">Investors will note that companies
are in constant flux. Sometimes this can be sudden and dramatic, as in the case
of <b abp="398">ICI</b> or <b abp="399">Vodafone</b>. More commonly, new management branch out into
new businesses that change the nature of the company. At other times, the basic
business is disrupted by competition or new technology. Sometimes they reflect
the work of excellent management, as has been the case of <b abp="400">Unilever</b>.<o:p abp="401"></o:p></span></span></div>
<div abp="402">
</div>
<div abp="403" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="404" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="405" style="font-family: Calibri;">While a buy and hold strategy has its
merits, investors would be wise to monitor their investments regularly. <o:p abp="406"></o:p></span></span></div>
<div abp="407">
</div>
<div abp="408" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="409" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="410" style="font-family: Calibri;">---------------------------------------------------------------------------------</span></span></div>
<div abp="413" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="414" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="415"><span abp="416" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="417">
</div>
<h3 abp="418" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="420" lang="EN-US" style="mso-ansi-language: EN-US;"><span style="color: #660000;">MITIE Group PLC<o:p abp="422"></o:p></span></span></h3>
<div abp="423">
</div>
<div abp="730" class="separator" style="clear: both; text-align: center;">
<a abp="731" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwVu2sE-8nwbuP0iN_i3Kuv9SvHYvn4CzuUzUqxmq9BnRpw7sxY9TJAcXTNTe6pzvaX4VIq8P0cx8Vf2loeuX2j_ftCnxCCmAOdz55F_1pPqq_rZRBCDaL3quvtAz9zZyy79M4yI5xbfg/s1600/MITIE+slogan.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="732" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwVu2sE-8nwbuP0iN_i3Kuv9SvHYvn4CzuUzUqxmq9BnRpw7sxY9TJAcXTNTe6pzvaX4VIq8P0cx8Vf2loeuX2j_ftCnxCCmAOdz55F_1pPqq_rZRBCDaL3quvtAz9zZyy79M4yI5xbfg/s1600/MITIE+slogan.png" height="38" width="320" /></a></div>
<div abp="424" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="433" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="434" style="font-family: Calibri;">MITIE slogan,
courtesy MITIE 2013 Annual Report<o:p abp="435"></o:p></span></span></div>
<div abp="436">
</div>
<div abp="437" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="438" style="font-family: Calibri;"><b abp="439"><span abp="440" lang="EN-GB">The facilities management company, MITIE, once offered a unique
business model for the industry</span></b><span abp="441" lang="EN-GB">. An acronym for <i abp="442">Management
Incentive Through Investment Equity</i>, <b abp="443">MITIE</b> created a majority
interest in many small businesses in its market via partial acquisition or
co-financing. Its partners retained management autonomy with the incentive
that, after five to ten years, <b abp="444">MITIE </b>would buy them out on a multiple of
ten times post-tax profits, averaged over the previous<span abp="445" style="mso-spacerun: yes;"> </span>two or three years. Owner managers were
encouraged to continue working for <b abp="446">MITIE</b> after selling their shares. As
a result, <b abp="447">MITIE'</b>s businesses were part owned by local management, the
founders. The entrepreneurial spirit was kept alive. And this was its charm.</span></span></div>
<div abp="448">
</div>
<div abp="449" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="450" style="font-family: Calibri;"><b abp="451"><span abp="452" lang="EN-US" style="mso-ansi-language: EN-US;">Between January 1999 and February
2008 MITIE's share price increased by 428%.</span></b><span abp="453" lang="EN-US" style="mso-ansi-language: EN-US;"> Beginning in 2006, <b abp="454">MITIE</b> began to buy
well-established companies. The first was the security business of <b abp="455">Rentokil
Initial</b>. This enabled the company to continue its growth, but at the cost
of changing its business model. The new companies were large and more complex
and required substantial integration. And <b abp="456">MITIE</b> breached the
entrepreneurial model on which it was founded. Net debt has soared from 11
million pounds in 2008 to 222 million at mid 2013. Management now refer to
'Headline' profits that exclude the considerable costs of its strategy, as if
they are of no importance to the shareholder to whom they are reporting. The
leopard has changed its spots. <o:p abp="457"></o:p></span></span></div>
<div abp="458">
</div>
<div abp="459" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="460" style="font-family: Calibri;"><b abp="461"><span abp="462" lang="EN-US" style="mso-ansi-language: EN-US;">As a result, over the last five
years MITIE's share price</span></b><span abp="463" lang="EN-US" style="mso-ansi-language: EN-US;"> (in blue) has increased by far less than the FTSE 250 (in green), of
which it is a constituent.<o:p abp="464"></o:p></span></span></div>
<div abp="465">
</div>
<div abp="748" class="separator" style="clear: both; text-align: center;">
<a abp="749" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGHb9-HKkG0ctmMt-P1F8O5gHxgrDdZJlf_rwxDzG86ePhkZSQqqwwYCIu8TGx54HKm74PwoRpyQTw481YstfstlZm_1zw26l-PxYk1ardODl6FpA6fN7u1oA7qZ1Lpp_zLkvV7DQj3os/s1600/MITIE+share+price+Vs+FTSE+250.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="750" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGHb9-HKkG0ctmMt-P1F8O5gHxgrDdZJlf_rwxDzG86ePhkZSQqqwwYCIu8TGx54HKm74PwoRpyQTw481YstfstlZm_1zw26l-PxYk1ardODl6FpA6fN7u1oA7qZ1Lpp_zLkvV7DQj3os/s1600/MITIE+share+price+Vs+FTSE+250.png" height="172" width="400" /></a></div>
<div abp="466" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="467" style="font-family: Calibri;"><span abp="468" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="469" alt="MITIE share price Vs FTSE 250.png" id="Picture_x0020_2" o:spid="_x0000_i1025" style="height: 184.5pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75">
<v:imagedata abp="470" o:title="MITIE share price Vs FTSE 250" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.png">
</v:imagedata></v:shape></span><span abp="471" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="472"></o:p></span></span></div>
<div abp="473">
</div>
<div abp="474" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="475" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="476" style="font-family: Calibri;">Graph
courtesy Yahoo, click to enlarge.<o:p abp="477"></o:p></span></span></div>
<div abp="478">
</div>
<div abp="479" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="480" style="font-family: Calibri;"><b abp="481"><span abp="482" lang="EN-US" style="mso-ansi-language: EN-US;">While MITIE might have fallen out of</span><span abp="483" lang="EN-GB"> favour</span></b><b abp="484"><span abp="485" lang="EN-US" style="mso-ansi-language: EN-US;">
with investors</span></b><span abp="486" lang="EN-US" style="mso-ansi-language: EN-US;">, the
company has prospered with its more conventional business model. Consider:<o:p abp="487"></o:p></span></span></div>
<div abp="488">
</div>
<div abp="489" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="490" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="491" style="font-family: Calibri;">1. <b abp="492">Earnings per share </b>have
increased by 9% per annum through the recession - from 2005-7 to 2012-14. <o:p abp="493"></o:p></span></span></div>
<div abp="494">
</div>
<div abp="495" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="496" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="497" style="font-family: Calibri;">2. While <b abp="498">return on equity</b> has
declined, the return on new equity is still a healthy 14%.<o:p abp="499"></o:p></span></span></div>
<div abp="500">
</div>
<div abp="501" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="502" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="503" style="font-family: Calibri;">3. <b abp="504">Management seem to have been
successful</b> in building up a new healthcare and homecare business, while
winding down engineering services where it was not able to make a satisfactory
profit.<o:p abp="505"></o:p></span></span></div>
<div abp="506">
</div>
<div abp="507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="508" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="509" style="font-family: Calibri;">4. <b abp="510">Operating cash flow, </b>net
of capital expenditure, for the last five years has covered the dividend by 1.8
times, leaving 119 million pounds available for acquisitions.<o:p abp="511"></o:p></span></span></div>
<div abp="512">
</div>
<div abp="513" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="514" style="font-family: Calibri;"><span abp="515" lang="EN-US" style="mso-ansi-language: EN-US;">5. <b abp="516">The record order book</b> at
9.2 billion pounds is 4 1/2 times annual sales, giving an idea of the momentum
that this service company has generated. </span><span abp="517" lang="EN-GB">2014 budgeted
sales were 85% covered at the beginning of the year.</span><span abp="518" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="519"></o:p></span></span></div>
<div abp="520">
</div>
<div abp="521" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="522" style="font-family: Calibri;"><b abp="523"><span abp="524" lang="EN-US" style="mso-ansi-language: EN-US;">At the present price of 329p, MITIE</span></b><span abp="525" lang="EN-US" style="mso-ansi-language: EN-US;"> shares are trading on a PE ratio of 30,
reflecting 40 million pounds after tax reorganization costs that halved the
'headline' profit, and they yield 3.1%. </span><span abp="526" lang="EN-GB">A profit
recovery is expected in 2014, which is supported by better results in the 6
months to September 2013. </span><span abp="527" lang="EN-US" style="mso-ansi-language: EN-US;">This would put the share on a prospective PE ratio of 14 (broker
forecasts) and a yield of 3.3%. <b abp="528">My valuation model values MITIE shares at
335p.*</b> This assumes that reorganization costs will cease and that net
operating cash flow is used to pay off debt. <b abp="529">Less optimistic assumptions
would lower the valuation to 228p a share.**<o:p abp="530"></o:p></b></span></span></div>
<div abp="531">
</div>
<div abp="532" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="533" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="534" style="font-family: Calibri;">*Earnings per share growth of 9% on a
base eps of 18p (average of 2012-14), an average PE ratio of 21.5, 14% return
on equity, equity per share growth of 6%, dividend payout 50% of eps; using a
discount rate of 10.8% (3.8% SLXX, 2% operating risk, 5% margin of safety) for
the years 2015-2019.<o:p abp="535"></o:p></span></span></div>
<div abp="536">
</div>
<div abp="537" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="538" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="539" style="font-family: Calibri;">**As above except eps growth of 2%
and an average PE ratio of 16.5 for 2015-2019.<o:p abp="540"></o:p></span></span></div>
<div abp="541">
</div>
<div abp="542" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="543" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p abp="544"><span abp="545" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="546">
</div>
<div abp="547" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="548"><span abp="549" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="550" style="font-family: Calibri;">There are serious caveats:</span></span></b></div>
<div abp="553" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="554" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="555"><span abp="556" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="557">
</div>
<div abp="558" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="559" style="font-family: Calibri;"><b abp="560"><span abp="561" lang="EN-US" style="mso-ansi-language: EN-US;">The CEO</span></b><span abp="562" lang="EN-US" style="mso-ansi-language: EN-US;"> uses the annual reports to sell the company
rather than address the problems it faces. It is disappointing that the CEO
does not indicate what will be the final cost or the time period of the
reorganization she is managing or how she intends to pay off the large loans
the company has taken out in recent years. Shareholders should be informed why the
units <b abp="563">MITIE</b> is exiting from cannot be sold to other operators.<o:p abp="564"></o:p></span></span></div>
<div abp="565">
</div>
<div abp="566" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="567" style="font-family: Calibri;"><b abp="568"><span abp="569" lang="EN-US" style="mso-ansi-language: EN-US;">Remuneration benchmarks for the
management team do not help</span></b><span abp="570" lang="EN-US" style="mso-ansi-language: EN-US;">. While the annual reports are not specific enough to explain precisely how
bonuses are awarded, it seems that they are largely based on 'headline'
earnings and the share price. Under this formula, earnings can be bought in by
acquiring companies while their cost (amortization and integration) is
excluded. 'Headline' earnings also exclude the costs of running down two of <b abp="571">MITIE'</b>s
divisions.<o:p abp="572"></o:p></span></span></div>
<div abp="573">
</div>
<div abp="574" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="575" style="font-family: Calibri;"><b abp="576"><span abp="577" lang="EN-US" style="mso-ansi-language: EN-US;">The seasoned investor will also note</span></b><span abp="578" lang="EN-US" style="mso-ansi-language: EN-US;">:<o:p abp="579"></o:p></span></span></div>
<div abp="580">
</div>
<div abp="581" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="582" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="583" style="font-family: Calibri;">1. <b abp="584">Three directors sold shares</b>
worth 1.4 million pounds at 290p in September 2013. There were no director
purchases.<o:p abp="585"></o:p></span></span></div>
<div abp="586">
</div>
<div abp="587" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="588" style="font-family: Calibri;"><span abp="589" lang="EN-GB">2. <b abp="590">The defined benefit pension scheme</b> is a drag on
attributable profits with a charge of 14 million pounds in 2013 following a 16
million pound charge in 2012.</span><span abp="591" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="592"></o:p></span></span></div>
<div abp="593">
</div>
<div abp="594" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="595" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="596" style="font-family: Calibri;">3. <b abp="597">Receivables </b>are 87 days
sales, illustrating the slow conversion to cash. Fortunately, trade payables
match receivables.<o:p abp="598"></o:p></span></span></div>
<div abp="599">
</div>
<div abp="600" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="601" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="602" style="font-family: Calibri;">4. <b abp="603">97% of revenues are in the UK
and 61% of these are in the private sector</b>. While given that the UK is one
of the stronger developed economies, this is positive, the company is in a very
competitive market. <b abp="604">MITIE</b> has withdrawn from engineering services, and energy
solutions, once highly touted, is loss making and shrinking. . <o:p abp="605"></o:p></span></span></div>
<div abp="606">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com2tag:blogger.com,1999:blog-6123577473607160262.post-53962634550962403332014-01-16T13:10:00.000+00:002014-01-16T13:10:06.990+00:00<div abp="293">
</div>
<h3 abp="294" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="295" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="296" style="color: #20124d;">Where are we now in the Stock Market Cycle?<o:p abp="297"></o:p></span></span></h3>
<div abp="298">
</div>
<h4 abp="299" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="300" style="color: #660000;"><span abp="301" lang="EN-US" style="mso-ansi-language: EN-US;">And </span><span abp="302" lang="EN-GB">Unilever PLC<o:p abp="303"></o:p></span></span></h4>
<div abp="304">
</div>
<div abp="1062" class="separator" style="clear: both; text-align: center;">
<a abp="1063" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFqJQwbE-XxnlHj2XMGZbVSFSvIHcHvJP3bX-bLEP4At5TB1Yrt1rIMzEGFQBPoCqnTz_axrRpYYtHXCr9-B82u-vd92cKkAx1YArxvt6ihbOST6RPKiHJYybXVX9JaMZtUIHbo_jsgoo/s1600/220px-Astrologer_Casting_a_Horoscope_1617+Robert+Fludd.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1064" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjFqJQwbE-XxnlHj2XMGZbVSFSvIHcHvJP3bX-bLEP4At5TB1Yrt1rIMzEGFQBPoCqnTz_axrRpYYtHXCr9-B82u-vd92cKkAx1YArxvt6ihbOST6RPKiHJYybXVX9JaMZtUIHbo_jsgoo/s1600/220px-Astrologer_Casting_a_Horoscope_1617+Robert+Fludd.jpg" /></a></div>
<div abp="307" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
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<div abp="332" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="333" style="font-family: Calibri;"><i abp="334"><span abp="335" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">Astrologer casting a horoscope</span></i><span abp="336" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">,
1617, Robert Fludd, courtesy Wikipedia</span><span abp="337" lang="EN-US" style="mso-ansi-language: EN-US;">. <o:p abp="338"></o:p></span></span></div>
<div abp="339">
</div>
<div abp="340" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="341"><span abp="342" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="343"><span abp="344" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="345">
</div>
<div abp="346" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="347" style="font-family: Calibri;"><b abp="348"><span abp="349" lang="EN-US" style="mso-ansi-language: EN-US;">It is the time of year when financial journalists</span></b><span abp="350" lang="EN-US" style="mso-ansi-language: EN-US;">, stockbrokers and anyone vaguely
interested in the stock market offers an opinion on what the stock market will
do this year. They have the power of prediction of the astrologers of yore. </span></span></div>
<div abp="346" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="347" style="font-family: Calibri;"><span abp="350" lang="EN-US" style="mso-ansi-language: EN-US;"></span></span><b abp="354"><span abp="355" lang="EN-GB"><o:p abp="356"><span abp="357" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="358">
</div>
<div abp="359" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="360" style="font-family: Calibri;"><b abp="361"><span abp="362" lang="EN-GB">Howard Marks of Oaktree Capital Management is a self-styled
contrarian investor</span></b><span abp="363" lang="EN-GB">. To understand where we are in
a market cycle, <b abp="364">Marks</b> sets out a simple checklist that he calls
"The poor man's guide to market assessment". For each consideration
he has set up a pair of answers. Check one of the two for each consideration.
"And", he writes, "If you find that most of your checkmarks are
in the left-hand column, hold on to your wallet." <b abp="365">Oaktree Capital
Management</b> applies <b abp="366">Marks's</b> principles to the $71 billion debt,
property and equity investments the company manages. <b abp="367">Mr Marks</b> has a
personal fortune of $1.5 billion.<span abp="368" style="mso-spacerun: yes;"> </span></span></span></div>
<div abp="370" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="371" lang="EN-GB"><o:p abp="372"><span abp="373" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="374">
</div>
<div abp="375" align="center">
<table abp="376" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="377">
<tr abp="378" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="379" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="380" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="381"><span abp="382" lang="EN-GB"><span abp="383" style="font-family: Calibri;">Considerations<o:p abp="384"></o:p></span></span></b></div>
</td>
<td abp="385" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="386" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="387"><span abp="388" lang="EN-GB"><span abp="389" style="font-family: Calibri;">Unfavourable<o:p abp="390"></o:p></span></span></b></div>
</td>
<td abp="391" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="392" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="393"><span abp="394" lang="EN-GB"><span abp="395" style="font-family: Calibri;">Favourable<o:p abp="396"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="397" style="mso-yfti-irow: 1;">
<td abp="398" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="400" lang="EN-GB"><span abp="401" style="font-family: Calibri;">Economy</span></span></div>
</td>
<td abp="402" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="403" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="404" lang="EN-GB"><span abp="405" style="font-family: Calibri;">Vibrant</span></span></div>
</td>
<td abp="406" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="407" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="408" lang="EN-GB"><span abp="409" style="font-family: Calibri;">Sluggish</span></span></div>
</td>
</tr>
<tr abp="410" style="mso-yfti-irow: 2;">
<td abp="411" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="412" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="413" lang="EN-GB"><span abp="414" style="font-family: Calibri;">Outlook</span></span></div>
</td>
<td abp="415" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="416" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="417" lang="EN-GB"><span abp="418" style="font-family: Calibri;">Positive</span></span></div>
</td>
<td abp="419" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="420" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="421" lang="EN-GB"><span abp="422" style="font-family: Calibri;">Negative</span></span></div>
</td>
</tr>
<tr abp="423" style="mso-yfti-irow: 3;">
<td abp="424" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="425" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="426" lang="EN-GB"><span abp="427" style="font-family: Calibri;">Lenders</span></span></div>
</td>
<td abp="428" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="429" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="430" lang="EN-GB"><span abp="431" style="font-family: Calibri;">Eager</span></span></div>
</td>
<td abp="432" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="433" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="434" lang="EN-GB"><span abp="435" style="font-family: Calibri;">Reticent</span></span></div>
</td>
</tr>
<tr abp="436" style="mso-yfti-irow: 4;">
<td abp="437" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="438" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="439" lang="EN-GB"><span abp="440" style="font-family: Calibri;">Capital
Markets</span></span></div>
</td>
<td abp="441" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="442" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="443" lang="EN-GB"><span abp="444" style="font-family: Calibri;">Loose</span></span></div>
</td>
<td abp="445" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="446" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="447" lang="EN-GB"><span abp="448" style="font-family: Calibri;">Tight</span></span></div>
</td>
</tr>
<tr abp="449" style="mso-yfti-irow: 5;">
<td abp="450" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="451" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="452" lang="EN-GB"><span abp="453" style="font-family: Calibri;">Terms</span></span></div>
</td>
<td abp="454" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="455" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="456" lang="EN-GB"><span abp="457" style="font-family: Calibri;">Easy</span></span></div>
</td>
<td abp="458" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="459" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="460" lang="EN-GB"><span abp="461" style="font-family: Calibri;">Restrictive</span></span></div>
</td>
</tr>
<tr abp="462" style="mso-yfti-irow: 6;">
<td abp="463" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="464" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="465" lang="EN-GB"><span abp="466" style="font-family: Calibri;">Interest
rates</span></span></div>
</td>
<td abp="467" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="468" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="469" lang="EN-GB"><span abp="470" style="font-family: Calibri;">Low</span></span></div>
</td>
<td abp="471" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="472" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="473" lang="EN-GB"><span abp="474" style="font-family: Calibri;">High</span></span></div>
</td>
</tr>
<tr abp="475" style="mso-yfti-irow: 7;">
<td abp="476" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="477" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="478" lang="EN-GB"><span abp="479" style="font-family: Calibri;">Spreads
</span></span></div>
</td>
<td abp="480" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="481" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="482" lang="EN-GB"><span abp="483" style="font-family: Calibri;">Narrow</span></span></div>
</td>
<td abp="484" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="485" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="486" lang="EN-GB"><span abp="487" style="font-family: Calibri;">Wide</span></span></div>
</td>
</tr>
<tr abp="488" style="mso-yfti-irow: 8;">
<td abp="489" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="490" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="491" lang="EN-GB"><span abp="492" style="font-family: Calibri;">Investors</span></span></div>
</td>
<td abp="493" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="494" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="495" lang="EN-GB"><span abp="496" style="font-family: Calibri;">Optimistic</span></span></div>
</td>
<td abp="497" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="498" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="499" lang="EN-GB"><span abp="500" style="font-family: Calibri;">Pessimistic</span></span></div>
</td>
</tr>
<tr abp="501" style="mso-yfti-irow: 9;">
<td abp="502" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="503" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="504" lang="EN-GB"><span abp="505" style="font-family: Calibri;">Investors</span></span></div>
</td>
<td abp="506" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="508" lang="EN-GB"><span abp="509" style="font-family: Calibri;">Sanguine</span></span></div>
</td>
<td abp="510" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="511" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="512" lang="EN-GB"><span abp="513" style="font-family: Calibri;">Distressed</span></span></div>
</td>
</tr>
<tr abp="514" style="mso-yfti-irow: 10;">
<td abp="515" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="516" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="517" lang="EN-GB"><span abp="518" style="font-family: Calibri;">Investors</span></span></div>
</td>
<td abp="519" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="520" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="521" lang="EN-GB"><span abp="522" style="font-family: Calibri;">Eager
to buy</span></span></div>
</td>
<td abp="523" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="524" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="525" lang="EN-GB"><span abp="526" style="font-family: Calibri;">Uninterested
in buying</span></span></div>
</td>
</tr>
<tr abp="527" style="mso-yfti-irow: 11;">
<td abp="528" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="529" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="530" lang="EN-GB"><span abp="531" style="font-family: Calibri;">Asset
Owners</span></span></div>
</td>
<td abp="532" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="533" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="534" lang="EN-GB"><span abp="535" style="font-family: Calibri;">Happy
to hold</span></span></div>
</td>
<td abp="536" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="537" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="538" lang="EN-GB"><span abp="539" style="font-family: Calibri;">Rushing
for the exits</span></span></div>
</td>
</tr>
<tr abp="540" style="mso-yfti-irow: 12;">
<td abp="541" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="542" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="543" lang="EN-GB"><span abp="544" style="font-family: Calibri;">Sellers</span></span></div>
</td>
<td abp="545" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="546" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="547" lang="EN-GB"><span abp="548" style="font-family: Calibri;">Few</span></span></div>
</td>
<td abp="549" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="550" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="551" lang="EN-GB"><span abp="552" style="font-family: Calibri;">Many</span></span></div>
</td>
</tr>
<tr abp="553" style="mso-yfti-irow: 13;">
<td abp="554" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="555" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="556" lang="EN-GB"><span abp="557" style="font-family: Calibri;">Markets</span></span></div>
</td>
<td abp="558" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="559" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="560" lang="EN-GB"><span abp="561" style="font-family: Calibri;">Crowded</span></span></div>
</td>
<td abp="562" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="563" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="564" lang="EN-GB"><span abp="565" style="font-family: Calibri;">Starved
for attention</span></span></div>
</td>
</tr>
<tr abp="566" style="mso-yfti-irow: 14;">
<td abp="567" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="568" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="569" lang="EN-GB"><span abp="570" style="font-family: Calibri;">Funds</span></span></div>
</td>
<td abp="571" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="572" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="573" lang="EN-GB"><span abp="574" style="font-family: Calibri;">Hard
to gain entry</span></span></div>
</td>
<td abp="575" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="576" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="577" lang="EN-GB"><span abp="578" style="font-family: Calibri;">Open
to anyone</span></span></div>
</td>
</tr>
<tr abp="579" style="mso-yfti-irow: 15;">
<td abp="580" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="581" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="582" lang="EN-GB"><span abp="583" style="font-family: Calibri;">Funds</span></span></div>
</td>
<td abp="584" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="585" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="586" lang="EN-GB"><span abp="587" style="font-family: Calibri;">New
ones daily</span></span></div>
</td>
<td abp="588" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="589" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="590" lang="EN-GB"><span abp="591" style="font-family: Calibri;">Only
the best can raise money</span></span></div>
</td>
</tr>
<tr abp="592" style="mso-yfti-irow: 16;">
<td abp="593" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="594" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="595" lang="EN-GB"><span abp="596" style="font-family: Calibri;">Recent
performance</span></span></div>
</td>
<td abp="597" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="598" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="599" lang="EN-GB"><span abp="600" style="font-family: Calibri;">Strong</span></span></div>
</td>
<td abp="601" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="602" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="603" lang="EN-GB"><span abp="604" style="font-family: Calibri;">Weak</span></span></div>
</td>
</tr>
<tr abp="605" style="mso-yfti-irow: 17;">
<td abp="606" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="607" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="608" lang="EN-GB"><span abp="609" style="font-family: Calibri;">Asset
prices</span></span></div>
</td>
<td abp="610" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="611" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="612" lang="EN-GB"><span abp="613" style="font-family: Calibri;">High</span></span></div>
</td>
<td abp="614" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="615" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="616" lang="EN-GB"><span abp="617" style="font-family: Calibri;">Low</span></span></div>
</td>
</tr>
<tr abp="618" style="mso-yfti-irow: 18;">
<td abp="619" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="620" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="621" lang="EN-GB"><span abp="622" style="font-family: Calibri;">Prospective
returns</span></span></div>
</td>
<td abp="623" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="624" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="625" lang="EN-GB"><span abp="626" style="font-family: Calibri;">Low</span></span></div>
</td>
<td abp="627" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="628" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="629" lang="EN-GB"><span abp="630" style="font-family: Calibri;">High</span></span></div>
</td>
</tr>
<tr abp="631" style="mso-yfti-irow: 19;">
<td abp="632" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="633" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="634" lang="EN-GB"><span abp="635" style="font-family: Calibri;">Risk</span></span></div>
</td>
<td abp="636" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="637" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="638" lang="EN-GB"><span abp="639" style="font-family: Calibri;">High</span></span></div>
</td>
<td abp="640" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="641" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="642" lang="EN-GB"><span abp="643" style="font-family: Calibri;">Low</span></span></div>
</td>
</tr>
<tr abp="644" style="mso-yfti-irow: 20;">
<td abp="645" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="646" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="647" lang="EN-GB"><span abp="648" style="font-family: Calibri;">Popular
qualities</span></span></div>
</td>
<td abp="649" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="650" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="651" lang="EN-GB"><span abp="652" style="font-family: Calibri;">Aggressiveness</span></span></div>
</td>
<td abp="653" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="654" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="655" lang="EN-GB"><span abp="656" style="font-family: Calibri;">Caution
and discipline</span></span></div>
</td>
</tr>
<tr abp="657" style="mso-yfti-irow: 21; mso-yfti-lastrow: yes;">
<td abp="658" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="659" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="660" lang="EN-GB"><span abp="661" style="font-family: Calibri;">Popular
qualities</span></span></div>
</td>
<td abp="662" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="663" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="664" lang="EN-GB"><span abp="665" style="font-family: Calibri;">Broad
reach</span></span></div>
</td>
<td abp="666" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="667" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="668" lang="EN-GB"><span abp="669" style="font-family: Calibri;">Selectivity</span></span></div>
</td>
</tr>
</tbody></table>
</div>
<div abp="670">
</div>
<div abp="671" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="672" style="font-family: Calibri;"><span abp="673" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">From</span><i abp="674"><span abp="675" lang="EN-US"> </span></i><i abp="676"><span abp="677" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">The Most Important Thing: Uncommon Sense for the Thoughtful Investor</span></i><span abp="678" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"> by Howard Marks<o:p abp="679"></o:p></span></span></div>
<div abp="680">
</div>
<div abp="681" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="682" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="683" style="font-family: Calibri;">It is likely most people will check
the left column more frequently than the right. <o:p abp="684"></o:p></span></span></div>
<div abp="685">
</div>
<div abp="686" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="687" style="font-family: Calibri;"><b abp="688"><span abp="689" lang="EN-US" style="mso-ansi-language: EN-US;">James Mackintosh, of the Financial
Times <i abp="690">Short View</i> column (8 January 2014)</span></b><span abp="691" lang="EN-US" style="mso-ansi-language: EN-US;">, points out that UK investment trust discounts
are at an historical low. In the past low discounts have always been followed
by a period of stock market underperformance over the following 12 months.<o:p abp="692"></o:p></span></span></div>
<div abp="693">
</div>
<div abp="694" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="695" style="font-family: Calibri;"><b abp="696"><span abp="697" lang="EN-US" style="mso-ansi-language: EN-US;">Shiller's graph for the Cyclically
Adjusted Price Earnings ratio</span></b><span abp="698" lang="EN-US" style="mso-ansi-language: EN-US;"> (CAPE - the current price of the S & P 500 share price divided by a
rolling average of 10-year earnings) is commonly used as a measure of where we
are in the stock market cycle. This is because a 10-year rolling average for
earnings is a more reliable indicator than taking a single year. Here he
compares it to long-term interest rates. As one might expect, CAPE ratios are
higher when long-term interest rates are lower. In my valuation model this is
reflected in the discount rate, which depends on long-term interest rates.<o:p abp="699"></o:p></span></span></div>
<div abp="700">
</div>
<div abp="701" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="702" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="703"><span abp="704" style="font-family: Calibri;"> </span></o:p></span><div abp="1085" class="separator" style="clear: both; text-align: center;">
<span abp="704" style="font-family: Calibri;"><a abp="1086" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeOuygqz8PMwDIR7Bn643K-XBfq_r-KFEqE_2c6dIKvhffwYRjtO9uNLcdqzzusR5Ljqg_UsFuNjbFG1mg2pokylTeeKlTr5vGLEaHtJVbK7ST_Od2I9CEXD9xvuHBmABBa1-M4j7Y2tY/s1600/CAPE+Shiller+graph+January2014.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1087" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeOuygqz8PMwDIR7Bn643K-XBfq_r-KFEqE_2c6dIKvhffwYRjtO9uNLcdqzzusR5Ljqg_UsFuNjbFG1mg2pokylTeeKlTr5vGLEaHtJVbK7ST_Od2I9CEXD9xvuHBmABBa1-M4j7Y2tY/s1600/CAPE+Shiller+graph+January2014.jpg" height="258" width="400" /></a></span></div>
<br />
<div abp="705">
</div>
<div abp="714" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="715" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="716" style="font-family: Calibri;">Courtesy
Robert Shiller's Yale website, click to enlarge<o:p abp="717"></o:p></span></span></div>
<div abp="718">
</div>
<div abp="719" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="720" style="font-family: Calibri;"><b abp="721"><span abp="722" lang="EN-US" style="mso-ansi-language: EN-US;">Depending upon your reading of these
tea leaves</span></b><span abp="723" lang="EN-US" style="mso-ansi-language: EN-US;">, stock
markets in the US and the UK (the FTSE All Share is closely correlated to the
S&P 500) are either midway towards a bubble or they are nearing the top of
its regular cycle. <b abp="724">Goldman Sachs</b>, in its Monday telecast, is now
predicting a 'correction', but that the FTSE 100 will end 2014 10% up on 2013. <o:p abp="725"></o:p></span></span></div>
<div abp="726">
</div>
<div abp="727" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="728" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="729" style="font-family: Calibri;">What to do? It is at these moments
when rule-based investing comes to the aid of the party. Stick to a tested methodology
to value individual stocks and other assets that has worked for you in the past.
<o:p abp="730"></o:p></span></span></div>
<div abp="731">
</div>
<div abp="732" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="733" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="734" style="font-family: Calibri;">-----------------------------------------------------------------------------------------------------------<o:p abp="735"></o:p></span></span></div>
<div abp="736">
</div>
<h3 abp="737" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="739" lang="EN-GB"><span style="color: #660000;">Unilever
PLC<o:p abp="741"></o:p></span></span></h3>
<div abp="742">
</div>
<div abp="1143" class="separator" style="clear: both; text-align: center;">
<a abp="1144" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6ra6-aszUIUhrGQhFmY99ywyIBuYEwhJyASnicd8_lN0MUSKD0vcqS9NE3dqFB6EFTgcgbmgf6aalBH3B3u-0RaryMgWP_2FtwKQ-UkVoMpfmVdPjW6D7oSHdoR4M_fZGWvc3qgJoqBk/s1600/Lux+advert+-wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1145" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6ra6-aszUIUhrGQhFmY99ywyIBuYEwhJyASnicd8_lN0MUSKD0vcqS9NE3dqFB6EFTgcgbmgf6aalBH3B3u-0RaryMgWP_2FtwKQ-UkVoMpfmVdPjW6D7oSHdoR4M_fZGWvc3qgJoqBk/s1600/Lux+advert+-wiki.jpg" height="305" width="320" /></a></div>
<div abp="743" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="744" style="font-family: Calibri;"><span abp="745" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="746" alt="Lux advert -wiki.jpg" id="Picture_x0020_0" o:spid="_x0000_i1026" style="height: 193.5pt; mso-wrap-style: square; visibility: visible; width: 202.5pt;" type="#_x0000_t75"><v:imagedata abp="747" o:title="Lux advert -wiki" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.jpg"></v:imagedata></v:shape></span><span abp="748" lang="EN-US" style="mso-ansi-language: EN-US;"></span></span> </div>
<div abp="751" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="752" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="753" style="font-family: Calibri;">Ad for Lux soap from the 1920s, courtesy Wikipedia<o:p abp="754"></o:p></span></span></div>
<div abp="755">
</div>
<div abp="756" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="757" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="758"><span abp="759" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="760">
</div>
<div abp="761" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="762" style="font-family: Calibri;"><b abp="763"><span abp="764" lang="EN-US" style="mso-ansi-language: EN-US;">Unilever was reviewed at this blog in April 2013</span></b><span abp="765" lang="EN-US" style="mso-ansi-language: EN-US;"> (see </span><span abp="766" lang="EN-GB"><a abp="767" href="http://thejoyfulinvestor.blogspot.co.uk/2013_04_01_archive.html"><span abp="768" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="769" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013_04_01_archive.html</span></span></a></span><span abp="770" lang="EN-US" style="mso-ansi-language: EN-US;">). <span abp="771" style="mso-spacerun: yes;"> </span>To resume:</span></span></div>
<div abp="774" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="775" lang="EN-GB"><o:p abp="776"><span abp="777" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="778">
</div>
<div abp="779" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="780" style="font-family: Calibri;"><b abp="781"><span abp="782" lang="EN-GB">The present
management</span></b><span abp="783" lang="EN-GB"> has staged a remarkable turnaround since
2005. Marketing is concentrated on 14 brands each with sales exceeding €1
billion, and emerging markets now account for 55% of the company's sales. </span></span></div>
<div abp="785" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="786" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="787"><span abp="788" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="789">
</div>
<div abp="790" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="791"><span abp="792" lang="EN-GB"><span abp="793" style="font-family: Calibri;">Financial results are strong. <o:p abp="794"></o:p></span></span></b></div>
<div abp="795">
</div>
<div abp="796" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="797" lang="EN-GB"><span abp="798" style="font-family: Calibri;">1. <b abp="799">Earnings per share</b> have increased by 11% pa from 2001-3 to
2010-12 and the <b abp="800">dividend per share</b> has increased by 18% pa from
2001-2012.</span></span></div>
<div abp="801">
</div>
<div abp="802" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="803" lang="EN-GB"><span abp="804" style="font-family: Calibri;">3. <b abp="805">Return on equity</b> averages 31% on an historical basis, but
this has fallen to 15% on retained earnings. <b abp="806">Equity per share</b> has
increased by 7% pa since 2001.</span></span></div>
<div abp="807">
</div>
<div abp="808" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="809" lang="EN-GB"><span abp="810" style="font-family: Calibri;">4. <b abp="811">Free cash flow</b> of €27 billion in the past 5 years has paid
for capital expenditure and the dividend with €6 billion to spare. <span abp="812" style="mso-spacerun: yes;"> </span>This was used to reduce debt.</span></span></div>
<div abp="813">
</div>
<div abp="814" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="815" lang="EN-GB"><span abp="816" style="font-family: Calibri;">5. <b abp="817">Net debt</b> is down from €26 billion in 2000 to €7.6 billion
in 2012. <b abp="818">Unilever</b> has a l<b abp="819">ong-term credit</b> rating of A+.</span></span><span abp="822" lang="EN-GB"><o:p abp="823"><span abp="824" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="825">
</div>
<div abp="826" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="827" lang="EN-GB"><span abp="828" style="font-family: Calibri;">Yet the price of <b abp="829">Unilever</b>
shares (in blue) is back where it was at the beginning of 2013 while the FTSE
100 (in green), of which it is a component, has increased by 12%.</span></span></div>
<div abp="830">
</div>
<div abp="831" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="832" lang="EN-GB"><o:p abp="833"><span abp="834" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="835">
</div>
<div abp="1161" class="separator" style="clear: both; text-align: center;">
<a abp="1162" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrqywjpi3UxZlLwRKYaUxU3WM17P-NvSp7Y0-lHNzaHTkTdbecXpqKSX6jNC1SGNxzyJqK2AQq6DORy1yOA4negQANdrsdJhi5QdIq778Y3bCwAWPPF2GMh_uBOKo_aPYdMMGDkAGHYjM/s1600/Unilever+share+price+Vs+ftse.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1163" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrqywjpi3UxZlLwRKYaUxU3WM17P-NvSp7Y0-lHNzaHTkTdbecXpqKSX6jNC1SGNxzyJqK2AQq6DORy1yOA4negQANdrsdJhi5QdIq778Y3bCwAWPPF2GMh_uBOKo_aPYdMMGDkAGHYjM/s1600/Unilever+share+price+Vs+ftse.gif" height="242" width="400" /></a></div>
<div abp="836" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="837" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="838" alt="Unilever share price Vs ftse.gif" id="Picture_x0020_3" o:spid="_x0000_i1025" style="height: 250.5pt; mso-wrap-style: square; visibility: visible; width: 412.5pt;" type="#_x0000_t75"><span abp="839" style="font-family: Calibri;">
<v:imagedata abp="840" o:title="Unilever share price Vs ftse" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.gif">
</v:imagedata></span></v:shape></span></div>
<div abp="841">
</div>
<div abp="842" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="843" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="844" style="font-family: Calibri;">Graph
courtesy Barclays Stockbrokers, click to enlarge<o:p abp="845"></o:p></span></span></div>
<div abp="846">
</div>
<div abp="847" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="848" lang="EN-GB"><o:p abp="849"><span abp="850" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="852" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="853" lang="EN-GB"><span abp="854" style="font-family: Calibri;">What has happened?</span></span></div>
<div abp="856" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="857" lang="EN-GB"><o:p abp="858"><span abp="859" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="860">
</div>
<div abp="861" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="862" lang="EN-GB"><span abp="863" style="font-family: Calibri;">1. <b abp="864">Analysts have
reduced earnings expectations for 2013 to 3%</b>. The reduced earnings
expectations for 2013 are the result of a<b abp="865">dverse currency movements</b>
against the Euro of the US dollar and many other currencies. And <b abp="866">Unilever</b>
sold Skippy for $0.8 billion. Once revenues are corrected for currency
fluctuations and Skippy, they are up by around 5%, compared to 6.9% in 2012
(excluding acquisitions and favourable currency movements in that year). </span></span></div>
<div abp="868" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="869" lang="EN-GB"><o:p abp="870"><span abp="871" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="872">
</div>
<div abp="873" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="874" lang="EN-GB"><span abp="875" style="font-family: Calibri;">2. <b abp="876">Net debt jumped by
€4.2 billion in the first half of 2013</b>. This was almost entirely the result
of placing €3.8 billion into an escrow account to buy out the minority
shareholders in <b abp="877">Unilever'</b>s Indian subsidiary. In the end, <b abp="878">Unilever</b>
paid €2.5 billion for a smaller number of shares and the difference will go
back into cash at the 2013 year end. And future attributable profit deductions
for minorities will be considerably lower, though Unilever does not inform us
by how much.</span></span></div>
<div abp="880" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="881" lang="EN-GB"><o:p abp="882"><span abp="883" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="884">
</div>
<div abp="885" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="886" lang="EN-GB"><span abp="887" style="font-family: Calibri;">Some of <b abp="888">Unilever's</b>
brands, including Lux soap, go back to the 19th century. The company's brands
span all markets and many of the top 14 are either the largest or second
largest in their respective markets. Revenues from emerging markets grew by 9%
in the first 9 months of 2013, and it was Europe and North America where sales
stagnated. But both markets should resume their growth with the economic
recovery.</span></span></div>
<div abp="890" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="891" lang="EN-GB"><o:p abp="892"><span abp="893" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="894">
</div>
<div abp="895" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="896" lang="EN-GB"><span abp="897" style="font-family: Calibri;">Management is reducing
regional and local marketing staff by 12% with the purpose of reducing costs
and the duplication of functions. This follows other global consumer companies
that have either done something similar or have announced it. Unilever is
aiming, in addition, to save $400 million on global advertising by forcing down
rates rather than less exposure. </span></span></div>
<div abp="899" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="900" lang="EN-GB"><o:p abp="901"><span abp="902" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="903">
</div>
<div abp="904" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="905" style="font-family: Calibri;"><b abp="906"><span abp="907" lang="EN-GB">At the current price
of 2406p, Unilever</span></b><span abp="908" lang="EN-GB"> shares trade on an estimated
2013 PE ratio of 18 and yield 3.7%. Including the expected 2013 results in my
valuation model, the shares are good value.* Preliminary results for 2013 are
due on 21 January.</span></span></div>
<div abp="909">
</div>
<div abp="910" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="911" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="912" style="font-family: Calibri;">*Eps growth of 9% p.a., average PE of 18, 15% return on
equity, dividend payout ratio of 67% of earnings, discounted by 10.8% (3.8%
SLXX +<span abp="913" style="mso-spacerun: yes;"> </span>2% operating risk + 5% margin of
safety) for the years 2014-2018.</span></span></div>
<div abp="916" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="917" lang="EN-GB"><o:p abp="918"><span abp="919" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="920">
</div>
<div abp="921" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="922"><span abp="923" lang="EN-GB"><span abp="924" style="font-family: Calibri;">Cautious investors
will note:<o:p abp="925"></o:p></span></span></b></div>
<div abp="926">
</div>
<div abp="927" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="928" lang="EN-GB"><o:p abp="929"><span abp="930" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="931">
</div>
<div abp="932" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="933" lang="EN-GB"><span abp="934" style="font-family: Calibri;">1. <b abp="935">Emerging markets
growth</b> is in decline and there is no guarantee that it will recover its
former vitality.</span></span></div>
<div abp="936">
</div>
<div abp="937" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="938" lang="EN-GB"><span abp="939" style="font-family: Calibri;">2. <b abp="940">The competition is
intense</b> from the likes of Heinz, Colgate, Nestlé, Procter & Gamble and
Reckitt Benckiser, and local producers in places like China and India.</span></span></div>
<div abp="941">
</div>
<div abp="942" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="943" lang="EN-GB"><span abp="944" style="font-family: Calibri;">3. <b abp="945">The growth in
Unilever's earnings per share</b> has declined in recent years.</span></span></div>
<div abp="946">
</div>
<div abp="947" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="948" lang="EN-GB"><span abp="949" style="font-family: Calibri;">4. <b abp="950">Management</b> has
a large number of 'soft' objectives on social and environmental issues that
might distract them from profit making and cash generation.</span></span></div>
<div abp="951">
</div>
<div abp="952" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="953" lang="EN-GB"><o:p abp="954"><span abp="955" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="956">
</div>
<div abp="957" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="958" lang="EN-GB"><o:p abp="959"><span abp="960" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="961">
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com2tag:blogger.com,1999:blog-6123577473607160262.post-53333023342842972992014-01-09T09:24:00.000+00:002014-01-09T11:56:38.329+00:00<div abp="1579">
</div>
<h3 abp="1580" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1581" lang="EN-GB"><span abp="1582" style="color: #20124d;">The
Latest Bubble - Bitcoin<o:p abp="1583"></o:p></span></span></h3>
<div abp="1584">
</div>
<h4 abp="1585" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1586" lang="EN-GB"><span abp="1587" style="color: #660000;">And
A Portfolio of AIM shares (8) Utilitywise PLC<o:p abp="1588"></o:p></span></span></h4>
<div abp="1589">
</div>
<div abp="1590" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="1591"><span abp="1592" lang="EN-GB"><o:p abp="1593"><span abp="1594" style="font-family: Calibri;"> </span></o:p></span></b><br />
<div abp="2200" class="separator" style="clear: both; text-align: center;">
<b abp="1591"><span abp="1594" style="font-family: Calibri;"><a abp="2201" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkpUYtspVWG-M_6zmk0deB8kQ1K7wj6R_CX_rOoqEememadLOSYhorXAygzgdRxdXlagHHehOKpJy3hB7LHemdZBjyu9gWo9KkVofB4qPGnzR4TNpi7WPuYDs86Cxe1QxhBaziWjNDQ9U/s1600/300px-Black+Hole_Large+Magellanic+Cloud+simulated+wiki.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="2202" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkpUYtspVWG-M_6zmk0deB8kQ1K7wj6R_CX_rOoqEememadLOSYhorXAygzgdRxdXlagHHehOKpJy3hB7LHemdZBjyu9gWo9KkVofB4qPGnzR4TNpi7WPuYDs86Cxe1QxhBaziWjNDQ9U/s1600/300px-Black+Hole_Large+Magellanic+Cloud+simulated+wiki.png" /></a></span></b></div>
<br />
<div abp="1597">
</div>
<div abp="1598" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1599" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1600" style="font-family: Calibri;">Simulated black hole Magellanic Cloud,
courtesy Wikipedia<o:p abp="1601"></o:p></span></span></div>
<div abp="1602">
</div>
<div abp="1603" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1604" style="font-family: Calibri;"><b abp="1605"><span abp="1606" lang="EN-GB" style="line-height: 115%;">Bitcoin has no taste, no
touch, no mass, no physical presence at all.</span></b><span abp="1607" lang="EN-GB" style="line-height: 115%;"> It is a money transmitter on the
internet like <b abp="1608">PayPal</b>, but whereas <b abp="1609">PayPal</b> clears accounts in seconds,
<b abp="1610">Bitcoin</b> can take up to four days. Thanks to the promise of anonymity, <b abp="1611">Bitcoin</b>
is favoured by purchasers of drugs and online gambling. China has banned its
use as a medium of exchange. The United States does not allow international <b abp="1612">bitcoins</b>
to be converted into real money - the US dollar.<o:p abp="1613"></o:p></span></span></div>
<div abp="1614">
</div>
<div abp="1615" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1616" lang="EN-GB" style="line-height: 115%;"><span abp="1617" style="font-family: Calibri;">How then is <b abp="1618">Bitcoin</b>
perceived as a store of value and compared, by its enthusiasts, to gold? And
how can something with no intrinsic value see its price multiply by hundreds of
times in the space of a year?</span></span><br />
<span abp="1616" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1617" style="font-family: Calibri;"><span style="font-size: small;"><o:p abp="1619"></o:p></span></span></span> </div>
<div abp="1620">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirfgbXHFmo1IEmEEL1XN3cCVhui8bqiu2TLdUpDeVIgJfVcEHKp4o5i6OfPJMWD4IxCi4K6yNXKzMhI4j91fSR4EE-cD6WhQ36DlBhPV8paJXrM9j3OfT9XWekzSc3eM_qPMOpdWQQ6ww/s1600/Bitcoin+price+index+Mt.+Gox.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirfgbXHFmo1IEmEEL1XN3cCVhui8bqiu2TLdUpDeVIgJfVcEHKp4o5i6OfPJMWD4IxCi4K6yNXKzMhI4j91fSR4EE-cD6WhQ36DlBhPV8paJXrM9j3OfT9XWekzSc3eM_qPMOpdWQQ6ww/s1600/Bitcoin+price+index+Mt.+Gox.png" height="135" width="400" /></a></div>
<div abp="1621" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1622" style="font-size: 10pt; line-height: 115%; mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shapetype id="_x0000_t75" coordsize="21600,21600"
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<v:stroke joinstyle="miter"/>
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<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image001.png"
o:title="Bitcoin price index Mt. Gox"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span abp="1624" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1625"></o:p></span><br /></div>
<div abp="1626">
</div>
<div abp="1627" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1628" style="font-family: Calibri;"><b abp="1629"><span abp="1630" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">Bitcoin</span></b><span abp="1631" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"> price in US dollars courtesy Mt.
Gox.<o:p abp="1632"></o:p></span></span></div>
<div abp="1633">
</div>
<div abp="1634" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1635" style="font-family: Calibri;"><b abp="1636"><span abp="1637" lang="EN-GB">Bitcoin</span></b><span abp="1638" lang="EN-GB"> was invented in 2009 by a
mysterious group or individual calling itself <i abp="1639">Satoshi Nakamoto</i>. He or
they invented a series of algorithms that, supposedly, simulate gold. The <b abp="1640">Bitcoin</b>
model is maintained by a self-appointed organization called the Bitcoin
Foundation. Its chairman styles himself 'a serial entrepreneur' and its vice
chairman was once a hacker going by the nickname of 'Yankee'. Their objectives
are to standardize, protect and promote <b abp="1641">Bitcoin</b>.</span></span></div>
<div abp="1642">
</div>
<div abp="1643" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1644" style="font-family: Calibri;"><b abp="1645"><span abp="1646" lang="EN-GB">Bitcoin'</span></b><span abp="1647" lang="EN-GB">s appeal is based on clever
marketing:</span></span></div>
<div abp="1648">
</div>
<div abp="1649" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1650" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1651" style="mso-list: Ignore;">·<span abp="1652" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1653" dir="LTR"></span><span abp="1654" lang="EN-GB"><span abp="1655" style="font-family: Calibri;">John
Authers of the <i abp="1656">Financial Times</i> writes 13 December, <b abp="1657">"The genius
of the new currency is that it has built-in scarcity."</b> The number of <b abp="1658">bitcoins</b>
in circulation is supposed to be limited to 21 million. This appeals to people
worried about the recent expansion in the money supply of major currencies
(quantitative easing). But what can be done by computer scientists can be
undone by computer scientists. And hackers have created their own unauthorised <b abp="1659">bitcoins</b>.</span></span></div>
<div abp="1649" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="1654" lang="EN-GB"><span style="font-family: Calibri;"></span></span> </div>
<div abp="1660">
</div>
<div abp="1661" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1662" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1663" style="mso-list: Ignore;">·<span abp="1664" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1665" dir="LTR"></span><span abp="1666" lang="EN-GB"><span abp="1667" style="font-family: Calibri;">New <b abp="1668">bitcoins</b>,
up to the supposed maximum 21 million, are 'mined' by computer scientists
called 'miners'. As the number of available <b abp="1669">bitcoins</b> diminishes the
difficulty of 'mining' them increases. This is an elaborate game with a payoff
in <b abp="1670">bitcoins</b> for successful 'miners'. </span></span></div>
<div abp="1661" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="1666" lang="EN-GB"><span style="font-family: Calibri;"></span></span> </div>
<div abp="1671">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqcuzgjLO_fi4s8miyj34We7IzYK8UxO6Yo7AONEZMCR2r4cLEjtqID1umuSO5EXD9RGSqdxkYCj37HUjINdBz12ltJ4PqL1QxpUjw_JLrgbL2hc795cMzsaqXsFEvdSC1oEytbQpCbRE/s1600/bitcoin+image+wiki.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqcuzgjLO_fi4s8miyj34We7IzYK8UxO6Yo7AONEZMCR2r4cLEjtqID1umuSO5EXD9RGSqdxkYCj37HUjINdBz12ltJ4PqL1QxpUjw_JLrgbL2hc795cMzsaqXsFEvdSC1oEytbQpCbRE/s1600/bitcoin+image+wiki.png" /></a></div>
<div abp="1672" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1673" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1674" style="mso-list: Ignore;">·<span abp="1675" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1676" dir="LTR"></span><span abp="1677" style="font-family: Calibri;"><b abp="1678"><span abp="1679" lang="EN-GB">Visually,
virtual bitcoins have been designed to look like gold coins</span></b><span abp="1680" lang="EN-GB"> and they use a symbol akin to the dollar. Users can hold them in <b abp="1681">bitcoin</b>
'wallets'. For people hoarding gold via exchange traded funds, a <b abp="1682">bitcoin</b>
might seem more real than a gold coin.</span></span></div>
<div abp="1672" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="1677" style="font-family: Calibri;"><span abp="1680" lang="EN-GB"></span></span> </div>
<div abp="1683">
</div>
<div abp="1684" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1685" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1686" style="mso-list: Ignore;">·<span abp="1687" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1688" dir="LTR"></span><span abp="1689" style="font-family: Calibri;"><b abp="1690"><span abp="1691" lang="EN-GB">Bitcoins
are held in anonymous 'blocks'</span></b><span abp="1692" lang="EN-GB">. This ensures that
ownership cannot be traced back by the tax authorities or anyone else.</span></span></div>
<div abp="1684" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="1689" style="font-family: Calibri;"><span abp="1692" lang="EN-GB"></span></span> </div>
<div abp="1693">
</div>
<div abp="1694" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l1 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1695" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1696" style="mso-list: Ignore;">·<span abp="1697" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1698" dir="LTR"></span><span abp="1699" style="font-family: Calibri;"><b abp="1700"><span abp="1701" lang="EN-GB">The
Bitcoin Foundation's motto is</span></b><span abp="1702" lang="EN-GB"> 'Developing a more
open economy', suggesting an altruistic purpose to the venture.</span></span></div>
<div abp="1703">
</div>
<div abp="1704" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1705" style="font-family: Calibri;"><b abp="1706"><span abp="1707" lang="EN-GB">Speculators can buy bitcoins from specialist suppliers</span></b><span abp="1708" lang="EN-GB">, such as Mt. Gox, Coinbase or China's BTCtrade. They issue a unique
code for the purchased units. </span></span></div>
<div abp="1709">
</div>
<div abp="1710" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1711" lang="EN-GB"><span abp="1712" style="font-family: Calibri;">While most of the speculative buying seems to have come from China,
Americans are not far behind. The Winkelvoss twins of Facebook fame have bought
some and they have applied for authorisation to launch a <b abp="1713">bitcoin</b>
exchange traded fund. Coinbase has raised $25 million to invest in the virtual
currency.</span></span></div>
<div abp="1714">
</div>
<div abp="1715" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1716" lang="EN-GB"><span abp="1717" style="font-family: Calibri;">As in the case of any bubble, seemingly sound arguments support the
rising price. The main rational argument is that <b abp="1718">Bitcoin</b>, as an internet
currency, will require so many billions of dollars to support its eventual role
as the preeminent money transmitter. Divide that number of billions by 21
million and, hey presto, a <b abp="1719">bitcoin</b> could be worth $1,000, $5,000 or
$10,000. Or nothing at all. <b abp="1720">Bitcoin</b> could be a black hole, sucking in dollars
and renminbis that will disappear forever.</span></span></div>
<div abp="1721">
</div>
<div abp="1722" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1723" lang="EN-GB"><span abp="1724" style="font-family: Calibri;">------------------------------------------------------------------------------------------------------------------------</span></span></div>
<div abp="1725">
</div>
<h3 abp="1726" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="1728" lang="EN-GB"><span style="color: #660000;">A
Portfolio of AIM shares (8); Utilitywise PLC</span></span></h3>
<div abp="1730">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHVMVaWelLOtqmlJAwUw_-ejIOsPqe80NC2jdeLbntrDJ7zlkcJOVphyphenhyphen0R7sb5ySC75H1qpzZutuJLrKaWFGFvdvibn7LG7Sugz4Rf811QKLbT2kQsUanzEVTZl1SJZOYU4QW50ukaxqM/s1600/220px-_Smart_meter.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHVMVaWelLOtqmlJAwUw_-ejIOsPqe80NC2jdeLbntrDJ7zlkcJOVphyphenhyphen0R7sb5ySC75H1qpzZutuJLrKaWFGFvdvibn7LG7Sugz4Rf811QKLbT2kQsUanzEVTZl1SJZOYU4QW50ukaxqM/s1600/220px-_Smart_meter.jpg" height="320" width="219" /></a></div>
<div abp="1731" align="center" class="MsoListParagraphCxSpFirst" style="margin: 0cm 0cm 0pt 36pt; text-align: center;">
<span abp="1732" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_2"
o:spid="_x0000_i1026" type="#_x0000_t75" alt="220px-_Smart_meter.jpg" style='width:102pt;
height:148.5pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image003.jpg"
o:title="220px-_Smart_meter"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><br /></div>
<div abp="1735" align="center" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt 36pt; text-align: center;">
<span abp="1736" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1737" style="font-family: Calibri;">A smart electricity meter,
courtesy Wikipedia<o:p abp="1738"></o:p></span></span></div>
<div abp="1739">
</div>
<div abp="1740" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; text-align: justify;">
<span abp="1741" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1742"><span abp="1743" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1744">
</div>
<div abp="1745" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1746" style="font-family: Calibri;"><b abp="1747"><span abp="1748" lang="EN-GB">The <i abp="1749">Investors
Chronicle </i>has chosen AIM listed Utilitywise PLC as its 'Growth Tip of the
Year' for 2014 at 244p a share</span></b><span abp="1750" lang="EN-GB">. Might this stock
form part of a portfolio of AIM shares? For the selection criteria of AIM
stocks see an earlier article at <a abp="1751" href="http://thejoyfulinvestor.blogspot.co.uk/2013/09/aportfolio-of-shares-in-aim-1-andthe.html"><span abp="1752" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013/09/aportfolio-of-shares-in-aim-1-andthe.html</span></a></span></span></div>
<div abp="1754" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1755" lang="EN-GB"><o:p abp="1756"><span abp="1757" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1758">
</div>
<div abp="1759" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1760" style="font-family: Calibri;"><b abp="1761"><span abp="1762" lang="EN-GB">Utilitywise</span></b><span abp="1763" lang="EN-GB"> <b abp="1764">was founded by Geoffrey Thompson and his son Adam in 2006</b> to
offer small and medium enterprises (SMEs) a service to reduce their energy
bills. The company's website claims: </span></span></div>
<div abp="1766" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1767" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1768" style="font-family: Calibri;">"Our energy consultants have
direct lines to the energy suppliers. Our consultants negotiate with energy
suppliers every day and have ready access to business energy prices unavailable
to the general public."<o:p abp="1769"></o:p></span></span></div>
<div abp="1770">
<span abp="1772" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1773"><span abp="1774" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1775">
</div>
<div abp="1776" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1777" lang="EN-GB"><span abp="1778" style="font-family: Calibri;">90% of the
company's revenues is derived from commissions paid by major energy suppliers
for procuring business from these SMEs. The remaining 10% of income comes
directly from SMEs for specific services designed to save energy. These include
the installation of smart meters and IT packages that measure and identify
energy savings. In 2012 <b abp="1779">Utilitywise</b> entered the water consultancy market
by acquiring Aqua Veritas Consulting Ltd. (Aqua).</span></span></div>
<div abp="1781" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1782" lang="EN-GB"><o:p abp="1783"><span abp="1784" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1785">
</div>
<div abp="1786" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1787" style="font-family: Calibri;"><b abp="1788"><span abp="1789" lang="EN-GB">With some
16,000 customers</span></b><span abp="1790" lang="EN-GB">, the company has a very small
share of the 1.8 million SMEs in the UK and Ireland. <b abp="1791">Utilitywise</b> claims
to be the largest supplier in a very fragmented market.</span></span></div>
<div abp="1793" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1794" lang="EN-GB"><o:p abp="1795"><span abp="1796" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1797">
</div>
<div abp="1798" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1799" style="font-family: Calibri;"><b abp="1800"><span abp="1801" lang="EN-GB">The
company</span></b><span abp="1802" lang="EN-GB"> listed on AIM in June 2012 at 60p a share.
Its shares are currently eligible for 100% business relief for Inheritance Tax,
the company has a 'free float' of 74% of its shares and the bid to offer spread
for its shares is 1.5%. It is valued by the stock market at 190 million pounds.
Directors own 26% of the company.</span></span></div>
<div abp="1804" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1805" lang="EN-GB"><o:p abp="1806"><span abp="1807" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1808">
</div>
<div abp="1809" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1810" style="font-family: Calibri;"><b abp="1811"><span abp="1812" lang="EN-GB">Utilitywise's
revenues and profits</span></b><span abp="1813" lang="EN-GB"> have grown at a racing pace,
as has its share price:</span></span></div>
<div abp="1814">
</div>
<div abp="1815" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1816" lang="EN-GB"><o:p abp="1817"><span abp="1818" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1819">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMg7D57vybA6xgI0j-CHHQ3lh2AXc1v-QiZbDywlR_HVS5EUIQDbyjR4S09inB5XkaW5k4g1z_cxI83szv-3ocU1i2OSs2_qR5xWoM4FWMs4GC6NlJcvytRGntNPmjzSFeXfri_My4pa4/s1600/UTW+share+price.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjMg7D57vybA6xgI0j-CHHQ3lh2AXc1v-QiZbDywlR_HVS5EUIQDbyjR4S09inB5XkaW5k4g1z_cxI83szv-3ocU1i2OSs2_qR5xWoM4FWMs4GC6NlJcvytRGntNPmjzSFeXfri_My4pa4/s1600/UTW+share+price.png" height="196" width="400" /></a></div>
<div abp="1820" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1821" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shape id="Picture_x0020_4" o:spid="_x0000_i1025"
type="#_x0000_t75" alt="UTW share price.png" style='width:425.25pt;height:209.25pt;
visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image005.png"
o:title="UTW share price"/>
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<div abp="1823">
</div>
<div abp="1824" align="center" class="MsoListParagraphCxSpMiddle" style="margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: center;">
<span abp="1825" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span abp="1826" style="font-family: Calibri;">Graph courtesy of LSE, click to enlarge<o:p abp="1827"></o:p></span></span></div>
<div abp="1828">
</div>
<div abp="1829" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1830" lang="EN-GB"><o:p abp="1831"><span abp="1832" style="font-family: Calibri;"> </span></o:p></span><b abp="1835"><span abp="1836" lang="EN-GB"><o:p abp="1837"><span abp="1838" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="1839">
</div>
<div abp="1840" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1841" style="font-family: Calibri;"><b abp="1842"><span abp="1843" lang="EN-GB">On the
surface, Utilitywise has performed magnificently since its June 2012 flotation
on AIM</span></b><span abp="1844" lang="EN-GB">:</span></span></div>
<div abp="1846" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1847" lang="EN-GB"><o:p abp="1848"><span abp="1849" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1850">
</div>
<div abp="1851" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1852" lang="EN-GB"><span abp="1853" style="font-family: Calibri;">1. <b abp="1854">Revenue
is up</b> by two-thirds and earnings per share is up by more than a third year
on year.</span></span></div>
<div abp="1856" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1857" lang="EN-GB"><o:p abp="1858"><span abp="1859" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1860">
</div>
<div abp="1861" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1862" lang="EN-GB"><span abp="1863" style="font-family: Calibri;">2. <b abp="1864">Three
acquisitions</b>, funded by issuing 5 million pounds in new shares and a 5
million pound loan, all contributed to the company's profit.</span></span></div>
<div abp="1866" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1867" lang="EN-GB"><o:p abp="1868"><span abp="1869" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1870">
</div>
<div abp="1871" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1872" lang="EN-GB"><span abp="1873" style="font-family: Calibri;">3. <b abp="1874">Utilitywise
</b>ended its 2013 fiscal year with net cash of 4 million pounds, and the
company generated 5 1/2 million pounds net operating cash flow in the last two
years.</span></span></div>
<div abp="1876" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1877" lang="EN-GB"><o:p abp="1878"><span abp="1879" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1880">
</div>
<div abp="1881" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1882" lang="EN-GB"><span abp="1883" style="font-family: Calibri;">4. <b abp="1884">Return
on equity</b> improved from 18% in 2012 to 19% in 2013. Gross margins are
expected to settle around the 45% mark.</span></span></div>
<div abp="1886" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1887" lang="EN-GB"><o:p abp="1888"><span abp="1889" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1890">
</div>
<div abp="1891" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1892" lang="EN-GB"><span abp="1893" style="font-family: Calibri;">5. <b abp="1894">Its
customer base</b> has increased by 40% in the year, 34% via organic growth. </span></span></div>
<div abp="1896" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1897" lang="EN-GB"><o:p abp="1898"><span abp="1899" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1900">
</div>
<div abp="1901" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; mso-add-space: auto; text-align: justify;">
<span abp="1902" style="font-family: Calibri;"><b abp="1903"><span abp="1904" lang="EN-GB">Looking
ahead</span></b><span abp="1905" lang="EN-GB">, 2014 should be another year of outstanding
growth in both revenue and pre-tax profit. Consider:</span></span></div>
<div abp="1906">
</div>
<div abp="1907" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 1cm; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: 0cm;">
<!--[if !supportLists]--><span abp="1908" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1909" style="mso-list: Ignore;">·<span abp="1910" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1911" dir="LTR"></span><span abp="1912" lang="EN-GB"><span abp="1913" style="font-family: Calibri;">At the end
of FY 2013, <b abp="1914">Utilitywise</b> had an order book of over 18 million pounds;
full year revenue in 2013 was 25 million pounds.</span></span></div>
<div abp="1915">
</div>
<div abp="1916" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 1cm; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: 0cm;">
<!--[if !supportLists]--><span abp="1917" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1918" style="mso-list: Ignore;">·<span abp="1919" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1920" dir="LTR"></span><span abp="1921" lang="EN-GB"><span abp="1922" style="font-family: Calibri;">The annualised
contribution from its three acquisitions would add a further 8 million <span abp="1923" style="mso-tab-count: 1;"> </span>pounds in revenue and 2 1/2 million pounds to
profit without any growth at all.</span></span></div>
<div abp="1924">
</div>
<div abp="1925" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 1cm; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify; text-indent: 0cm;">
<!--[if !supportLists]--><span abp="1926" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1927" style="mso-list: Ignore;">·<span abp="1928" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1929" dir="LTR"></span><span abp="1930" lang="EN-GB"><span abp="1931" style="font-family: Calibri;">And its
sales force at the beginning of FY 2014 was 86% higher that the sales force at the
beginning of FY 2013.</span></span></div>
<div abp="1932">
</div>
<div abp="1933" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1934" style="font-family: Calibri;"><b abp="1935"><span abp="1936" lang="EN-GB">At the present share
price of 240p</span></b><span abp="1937" lang="EN-GB">, <b abp="1938">Utilitywise</b> trades on an
historical PE ratio of 28 (once adjusted for non-recurring costs), and a
dividend yield of 1.1%. The broker forecast for 2014 places <b abp="1939">Utilitywise </b>shares<b abp="1940">
</b>on a forward PE ratio of 20 and a yield of 1.5%. The valuation from my
financial model values the shares at about the current price, when based only
on earnings considerations.* There is not enough data to use the equity per
share and return on equity valuation models.</span></span></div>
<div abp="1942" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1943" style="font-family: Calibri;"><span abp="1944" lang="EN-GB"><span abp="1945" style="mso-spacerun: yes;"> </span></span><span abp="1946" lang="EN-GB" style="font-size: 10pt; line-height: 115%;">*EPS growth of 20% p.a., average PE ratio of 18.5, discounted
at 11.8% (3.8% SLXX + 3% operational risk + 5% margin of safety) for the five-year period 2014-18.<o:p abp="1947"></o:p></span></span></div>
<div abp="1948">
</div>
<div abp="1949" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1950" lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p abp="1951"><span abp="1952" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1953">
</div>
<div abp="1954" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1955" style="font-family: Calibri;"><b abp="1956"><span abp="1957" lang="EN-GB">There is one serious
caveat</span></b><span abp="1958" lang="EN-GB">. Accounts receivable plus accrued revenue
represented 228 days sales in 2013 versus 77 days in 2012. This extraordinary
increase was due to an increase in accrued revenue of 9.5 million pounds in FY
2013. Accrued revenues "relate to commissions earned, not yet invoiced or
paid and are discounted at an appropriate rate." (Annual Report).
Non-current accrued revenues (revenues that will not be billed until after the
end of the following year) accounted for 7 million pounds of the increase in
reported revenues. While this accounting treatment of accrued revenues is
consistent with the guidelines set out by IAS18, it does have consequences for
the company.</span></span></div>
<div abp="1960" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1961" lang="EN-GB"><o:p abp="1962"><span abp="1963" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1964">
</div>
<div abp="1965" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1966" style="font-family: Calibri;"><b abp="1967"><span abp="1968" lang="EN-GB">If Utilitywise had not included non-current accrued revenues in
sales</span></b><span abp="1969" lang="EN-GB">, FY 2013 revenues would have been 18 million
pounds instead of 25 million and the company would have reported an adjusted
pre-tax profit of 4.8 million pounds instead of 7.8 million pounds. This helps
to explain the sharp decline of cash conversion, year on year, from 172% of
post-tax profits in 2012 to 25% in 2013.</span></span></div>
<div abp="1970">
</div>
<div abp="1971" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1972" lang="EN-GB"><span abp="1973" style="font-family: Calibri;">There is also the risk that the contracting party will not pay out
as agreed. <b abp="1974">Utilitywise </b>claims that its customers are 'blue chip' and the
company discounts future revenues at 3% per annum. While this may well be
reasonable, <b abp="1975">Utilitywise </b>is not the cash producing company it seems to be
on the surface. Its debtors require financing.</span></span></div>
<div abp="1976">
</div>
<div abp="1977" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1978" style="font-family: Calibri;"><b abp="1979"><span abp="1980" lang="EN-GB">And the prudent investor will note</span></b><span abp="1981" lang="EN-GB">:</span></span></div>
<div abp="1982">
</div>
<div abp="1983" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1984" lang="EN-GB"><span abp="1985" style="font-family: Calibri;">1. <b abp="1986">Utilitywise </b>is an intermediary between energy and water
suppliers and users. Intermediaries can sometimes be squeezed.</span></span></div>
<div abp="1987">
</div>
<div abp="1988" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1989" lang="EN-GB"><span abp="1990" style="font-family: Calibri;">2.<span abp="1991" style="mso-spacerun: yes;"> </span><b abp="1992">The company's share
price peaked at 288p</b> at the beginning of 2014 and was trading at only 89p
in April 2013.</span></span></div>
<div abp="1993">
</div>
<div abp="1994" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="1995" lang="EN-GB"><span abp="1996" style="font-family: Calibri;">3. <b abp="1997">Managers can lose control</b> over fast growing companies -
and <b abp="1998">Utilitywise's </b>staffing levels have more than trebled in the last
three years, with three acquisitions in the last 15 months. </span></span></div>
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<div abp="2000" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="2001" lang="EN-GB"><span abp="2002" style="font-family: Calibri;">4. <b abp="2003">Recently, two directors </b>are buying the shares at between
204p and 230p a share.</span></span></div>
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<span abp="2016" lang="EN-GB"><o:p abp="2017"><span abp="2018" style="font-family: Calibri;"> </span></o:p></span></div>
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<span abp="2056" lang="EN-GB"><o:p abp="2057"><span abp="2058" style="font-family: Calibri;"> </span></o:p></span></div>
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<span abp="2061" lang="EN-GB"><span abp="2062" style="mso-spacerun: yes;"><span abp="2063" style="font-family: Calibri;"> </span></span></span></div>
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The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com4tag:blogger.com,1999:blog-6123577473607160262.post-63522110923582125882013-12-18T09:19:00.000+00:002013-12-18T09:19:09.957+00:00<div abp="219">
</div>
<h3 abp="220" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="221" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="222" style="color: #20124d;">A Tale of Four Loan Markets (3) Mini Bonds<o:p abp="223"></o:p></span></span></h3>
<div abp="224">
</div>
<h4 abp="225" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="226" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="227" style="color: #660000;">And New City High Yield Investment Trust<o:p abp="228"></o:p></span></span></h4>
<div abp="229">
</div>
<div abp="810" class="separator" style="clear: both; text-align: center;">
<a abp="811" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDyyb8ukh_42PlPwrRWVU3d0wzgvg-PnhYTUlOAwYhHjCirMfqCPscHUjwF5NQmJUIYOSxb58vX9nbpqtAXLGKAPydBUH7Kv-N8Qm8ec9gFHWcYN-5xpRJUHtFOqgmzGu4gdntThDhbFU/s1600/150px-Internet_map_1024_-_transparent+Wiki.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="812" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDyyb8ukh_42PlPwrRWVU3d0wzgvg-PnhYTUlOAwYhHjCirMfqCPscHUjwF5NQmJUIYOSxb58vX9nbpqtAXLGKAPydBUH7Kv-N8Qm8ec9gFHWcYN-5xpRJUHtFOqgmzGu4gdntThDhbFU/s1600/150px-Internet_map_1024_-_transparent+Wiki.png" /></a></div>
<div abp="230" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="231" style="mso-ansi-language: ES; mso-no-proof: yes;"><!--[if gte vml 1]><v:shapetype
id="_x0000_t75" coordsize="21600,21600" o:spt="75" o:preferrelative="t"
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o:title="150px-Internet_map_1024_-_transparent Wiki"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span abp="232" lang="EN-US" style="mso-ansi-language: EN-US;"></span><br /></div>
<div abp="237" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="238" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="239" style="font-family: Calibri;">Routing paths
through part of the internet, courtesy Wikipedia<o:p abp="240"></o:p></span></span></div>
<div abp="241">
</div>
<div abp="242" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<b abp="243"><span abp="244" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="245" style="font-family: Calibri;">The recent trend for individuals and
businesses to seek financing from retail investors is the result of a
convergence of events.<o:p abp="246"></o:p></span></span></b></div>
<div abp="247">
</div>
<div abp="248" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="249" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="250" style="mso-list: Ignore;"><span abp="251" style="font-family: Calibri;">1.</span><span abp="252" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="253" dir="LTR"></span><span abp="254" style="font-family: Calibri;"><b abp="255"><span abp="256" lang="EN-US" style="mso-ansi-language: EN-US;">The internet as a media for business
transactions</span></b><span abp="257" lang="EN-US" style="mso-ansi-language: EN-US;"> has
grown in line with social activities, such as Facebook. As the public became
accustomed to dealing with their bank or shop online, their trust in the
internet grew and its convenience was demonstrated. Tapping retail savers for
loans was a logical extension of the internet as a global market place.</span></span></div>
<div abp="248" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="254" style="font-family: Calibri;"><span abp="257" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="258"></o:p></span></span> </div>
<div abp="259">
</div>
<div abp="260" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="261" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="262" style="mso-list: Ignore;"><span abp="263" style="font-family: Calibri;">2.</span><span abp="264" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="265" dir="LTR"></span><span abp="266" style="font-family: Calibri;"><b abp="267"><span abp="268" lang="EN-US" style="mso-ansi-language: EN-US;">By eliminating the middleman</span></b><span abp="269" lang="EN-US" style="mso-ansi-language: EN-US;">, the internet consumer experienced
savings too. Why not eliminate, or drastically reduce, the cost of the
financial intermediary? Wouldn't this mean better savings rates for
individuals?</span></span></div>
<div abp="260" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="266" style="font-family: Calibri;"><span abp="269" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="270"></o:p></span></span> </div>
<div abp="271">
</div>
<div abp="272" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="273" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="274" style="mso-list: Ignore;"><span abp="275" style="font-family: Calibri;">3.</span><span abp="276" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="277" dir="LTR"></span><span abp="278" style="font-family: Calibri;"><b abp="279"><span abp="280" lang="EN-US" style="mso-ansi-language: EN-US;">The rise of the internet as a market place</span></b><span abp="281" lang="EN-US" style="mso-ansi-language: EN-US;"> coincided with the financial
crisis. And the financial crisis destroyed the reputation of bankers.
Individuals, as savers, are now predisposed to bypass the banks and the
internet is there, beckoning.</span></span></div>
<div abp="272" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="278" style="font-family: Calibri;"><span abp="281" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="282"></o:p></span></span> </div>
<div abp="283">
</div>
<div abp="284" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="285" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="286" style="mso-list: Ignore;"><span abp="287" style="font-family: Calibri;">4.</span><span abp="288" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="289" dir="LTR"></span><span abp="290" style="font-family: Calibri;"><b abp="291"><span abp="292" lang="EN-US" style="mso-ansi-language: EN-US;">Quantitative easing and low Bank rates</span></b><span abp="293" lang="EN-US" style="mso-ansi-language: EN-US;"> mean that retail investors can only
obtain below inflation returns from their traditional sources, the banks,
National Savings and Investments and the building societies. Internet-based
savings sources offer better returns than traditional sources. </span></span></div>
<div abp="284" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="290" style="font-family: Calibri;"><span abp="293" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="294"></o:p></span></span> </div>
<div abp="295">
</div>
<div abp="296" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="297" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="298" style="mso-list: Ignore;"><span abp="299" style="font-family: Calibri;">5.</span><span abp="300" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="301" dir="LTR"></span><span abp="302" style="font-family: Calibri;"><b abp="303"><span abp="304" lang="EN-US" style="mso-ansi-language: EN-US;">After the financial crisis, banks reduced their
loans</span></b><span abp="305" lang="EN-US" style="mso-ansi-language: EN-US;"> to Small and
Medium Enterprises (SMEs). SMEs were forced to look to other sources. And the
retail saver was the least demanding and the cheapest source of funds.</span></span></div>
<div abp="296" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="302" style="font-family: Calibri;"><span abp="305" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="306"></o:p></span></span> </div>
<div abp="307">
</div>
<div abp="308" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="309" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="310" style="mso-list: Ignore;"><span abp="311" style="font-family: Calibri;">6.</span><span abp="312" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="313" dir="LTR"></span><span abp="314" style="font-family: Calibri;"><b abp="315"><span abp="316" lang="EN-US" style="mso-ansi-language: EN-US;">The British government</span></b><span abp="317" lang="EN-US" style="mso-ansi-language: EN-US;">, after the financial crisis, was desperate
to get funds to SMEs. New financial products and internet-based intermediaries
that offered a partial solution were welcomed with a light regulatory regime
and, in some cases, with government funding.<o:p abp="318"></o:p></span></span></div>
<div abp="319">
</div>
<div abp="320" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="321" style="font-family: Calibri;"><b abp="322"><span abp="323" lang="EN-US" style="mso-ansi-language: EN-US;">Peer to Peer lending (since 2005),
Peer to Business lending (since 2010) and the new ORB market for bonds (since
2010) were all created recently.</span></b><span abp="324" lang="EN-US" style="mso-ansi-language: EN-US;"> (See previous articles at </span><span abp="325" lang="EN-GB"><a abp="326" href="http://thejoyfulinvestor.blogspot.co.uk/2013_12_08_archive.html"><span abp="327" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="328" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013_12_08_archive.html</span></span></a></span><span abp="329" lang="EN-US" style="mso-ansi-language: EN-US;"> and </span><span abp="330" lang="EN-GB"><a abp="331" href="http://thejoyfulinvestor.blogspot.co.uk/2013_12_01_archive.html"><span abp="332" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="333" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013_12_01_archive.html</span></span></a></span><span abp="334" lang="EN-US" style="mso-ansi-language: EN-US;">)<o:p abp="335"></o:p></span></span></div>
<div abp="336">
</div>
<div abp="337" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="338" style="font-family: Calibri;"><b abp="339"><span abp="340" lang="EN-GB">Peer to Business
(P2B) loans are small</span></b><span abp="341" lang="EN-GB"> - rarely over 100,000 pounds
- and are designed for small businesses. The official bond market, which
includes the <b abp="342">ORB</b> market run by the London Stock Exchange, is only
available to large companies and the smallest issues run into the tens of
millions of pounds. Banks used to be the only source of loans for enterprises
that fall between <b abp="343">P2B </b>and the official bond market. Now <b abp="344">Mini-bonds</b>
offer a source of loans for these same businesses.</span></span></div>
<div abp="346" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="347" lang="EN-GB"><o:p abp="348"><span abp="349" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="350">
</div>
<div abp="351" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="352" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="353"><span abp="354" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="355">
</div>
<h4 abp="356" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="358" lang="EN-US" style="mso-ansi-language: EN-US;"><span style="color: #20124d;">Mini-Bonds*<o:p abp="360"></o:p></span></span></h4>
<div abp="361">
</div>
<div abp="833" class="separator" style="clear: both; text-align: center;">
<a abp="834" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzoyLSYQfBxotek39kCuiuRRdlMNYUnDRo2KVllrzclfNVOtC1Mu53yD5Fwpvi3E5XmiA5lWh1XwJ4RDQldhpdWmxeii4Q_IprbrClfZmwIOTDQpSgAoWL3FXru4nlsBOxrs0oX2ANdRU/s1600/TricksterII+Flash,+DC+Comics+Wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="835" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzoyLSYQfBxotek39kCuiuRRdlMNYUnDRo2KVllrzclfNVOtC1Mu53yD5Fwpvi3E5XmiA5lWh1XwJ4RDQldhpdWmxeii4Q_IprbrClfZmwIOTDQpSgAoWL3FXru4nlsBOxrs0oX2ANdRU/s1600/TricksterII+Flash,+DC+Comics+Wiki.jpg" height="320" width="143" /></a></div>
<div abp="362" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<!--[if gte vml 1]><v:shape
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o:title="TricksterII Flash, DC Comics Wiki"/>
</v:shape><![endif]--><!--[if !vml]--><!--[endif]--><span abp="369" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="370"><span abp="371" style="font-family: Calibri;"></span></o:p></span><br /></div>
<div abp="372">
</div>
<div abp="373" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="374" style="font-family: Calibri;"><i abp="375"><span abp="376" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">Flash</span></i><span abp="377" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">, C Comics,
courtesy Wikipedia<o:p abp="378"></o:p></span></span></div>
<div abp="379">
</div>
<div abp="380" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="381"><span abp="382" lang="EN-GB"><o:p abp="383"><span abp="384" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="385">
</div>
<div abp="386" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="387" style="font-family: Calibri;"><b abp="388"><span abp="389" lang="EN-GB">The first mini-bond
was launched by the toiletries concern King of Shaves in June 2009</span></b><span abp="390" lang="EN-GB">. The company aimed to raise 5 million pounds for a 3-year unsecured
loan at 6% from retail investors. It actually raised 0.6 million pounds which
was in effect rolled over with a second issue that raised 0.8 million pounds in
2012 from those same investors. The loan is not guaranteed by the </span><span abp="391" lang="EN-US" style="mso-ansi-language: EN-US;">Financial Service Compensation
Scheme nor is it eligible for an ISA.</span><span abp="392" lang="EN-US"> </span><span abp="393" lang="EN-GB">Unlike <b abp="394">P2B</b> and <b abp="395">ORB</b>, the <b abp="396">mini-bond</b> is not
transferrable or tradable.</span></span><span abp="399" lang="EN-GB"><o:p abp="400"><span abp="401" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="386" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="399" lang="EN-GB"><o:p abp="400"><span style="font-family: Calibri;"></span></o:p></span> </div>
<div abp="402">
</div>
<div abp="403" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="404" style="font-family: Calibri;"><b abp="405"><span abp="406" lang="EN-GB">King of Shaves, </span></b><span abp="407" lang="EN-GB">a private company<b abp="408">,</b> did not provide a prospectus or any balance
sheet or income statement. The latest accounts lodged with Companies House, as
of 31 May 2012, show it has a negative net worth of 6.5 million pounds. From an
investor's viewpoint, <b abp="409">King of Shaves' mini-bond</b> is at the extreme end of
junk. Financing this sort of business is more suitable for venture capitalists,
who will take a share of the equity, than for retail savers. </span></span></div>
<div abp="403" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="404" style="font-family: Calibri;"><span abp="407" lang="EN-GB"></span></span> </div>
<div abp="411" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="412" lang="EN-GB"><o:p abp="413"><span abp="414" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="415">
</div>
<div abp="416" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="417" lang="EN-GB"><span abp="418" style="font-family: Calibri;">Given the lack of
regulatory control, it is not surprising that the information provided by
issuers of <b abp="419">mini-bonds</b> comes in many different forms. <b abp="420">Ocean Capital
PLC</b>, for instance, is currently seeking 15 million pounds for an unsecured
3-year fixed term loan paying 6.5% p.a. 20% UK withholding tax is deducted from
the quarterly interest payments. This offer closes 19 December. </span></span></div>
<div abp="422" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="423" lang="EN-GB"><o:p abp="424"><span abp="425" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="426">
</div>
<div abp="427" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="428" style="font-family: Calibri;"><b abp="429"><span abp="430" lang="EN-GB">Ocean</span></b><span abp="431" lang="EN-GB"> provides the potential investor with a nine-page information
bulletin that includes a current balance sheet, a pro-forma balance sheet for
the parent company <b abp="432">Ocean Capital Ltd. </b>and a detailed explanation backed
with numbers of how the funds will be used. <b abp="433">Ocean</b> is a finance house
specialising in factoring (buying receivables from commercial concerns).
Investors are informed that the net worth of the parent company is 528,000 pounds.
After the fund raising, <b abp="434">Ocean</b> will have one pound of equity for every 55
pounds of assets. This loan would also be rated as junk by credit agencies. </span></span><span abp="437" lang="EN-GB"><o:p abp="438"><span abp="439" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="440">
</div>
<div abp="441" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="442" lang="EN-GB"><span abp="443" style="font-family: Calibri;">*See also Julian
Hoffmann's article <i abp="444">Mini Bonds under the Microscope</i> published in the <i abp="445">Investors
Chronicle</i> 29 November 2013. </span></span></div>
<div abp="446">
</div>
<div abp="447" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="448" lang="EN-GB"><o:p abp="449"><span abp="450" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="451">
</div>
<h4 abp="452" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="455" lang="EN-GB"><span style="color: #20124d;"><u>Conclusion<o:p abp="457"></o:p></u></span></span></h4>
<div abp="458">
</div>
<div abp="459" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="460" lang="EN-GB"><o:p abp="461"><span abp="462" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="463">
</div>
<div abp="464" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="465" style="font-family: Calibri;"><b abp="466"><span abp="467" lang="EN-GB">Mini-bonds bear the
highest risk of the four loan markets covered in this survey</span></b><span abp="468" lang="EN-GB">. Consider:</span></span></div>
<div abp="470" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="471" lang="EN-GB"><o:p abp="472"><span abp="473" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="474">
</div>
<div abp="475" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="476" lang="EN-GB"><span abp="477" style="font-family: Calibri;">1. <b abp="478">Risk of default</b>.
Any business can offer the public a <b abp="479">mini-bond</b> without any form of credit
screening or security. <b abp="480">P2P</b> and <b abp="481">P2B</b> intermediaries use credit
agencies to vet their borrowers. The <b abp="482">ORB </b>market requires a credit rating
by one of the main agencies and/or a charge on assets, and as its main market
are institutional investors, peer oversight is guaranteed.</span></span></div>
<div abp="484" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="485"><span abp="486" lang="EN-GB"><o:p abp="487"><span abp="488" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="489">
</div>
<div abp="490" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="491" style="font-family: Calibri;"><b abp="492"><span abp="493" lang="EN-GB">2. Guarantees. The
main</span></b><span abp="494" lang="EN-GB"> <b abp="495">P2P</b> intermediaries are building up
funds to compensate lenders for defaulting loans. <b abp="496">P2B</b>, listed bonds on <b abp="497">ORB</b>
and <b abp="498">mini-bonds</b> have no such guarantees.</span></span></div>
<div abp="500" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="501" lang="EN-GB"><o:p abp="502"><span abp="503" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="504">
</div>
<div abp="505" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="506" lang="EN-GB"><span abp="507" style="font-family: Calibri;">3. <b abp="508">Regulatory
oversight</b>. Only the <b abp="509">ORB</b> market for bonds is presently covered by the
Financial Conduct Authority. The other three all fall under the feeble oversight
of the Office of Fair Trading.</span></span></div>
<div abp="511" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="512" lang="EN-GB"><o:p abp="513"><span abp="514" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="515">
</div>
<div abp="516" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="517" lang="EN-GB"><span abp="518" style="font-family: Calibri;">4. <b abp="519">Liquidity</b>. <b abp="520">ORB</b>
offers the most liquidity thanks to a liquid secondary market for bonds. <b abp="521">P2P</b>
and <b abp="522">P2B intermediaries</b> offer lenders the possibility of selling on their
loans to other parties. <b abp="523">Mini-bond </b>issuers do not. Investors are locked
in for the loan period.</span></span></div>
<div abp="525" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="526" lang="EN-GB"><o:p abp="527"><span abp="528" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="529">
</div>
<div abp="530" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="531" lang="EN-GB"><span abp="532" style="font-family: Calibri;">5. <b abp="533">ISA eligibility</b>.
Only bonds quoted on <b abp="534">ORB</b> with a maturity of more than 5 years may be
included in an ISA. All the other loans (<b abp="535">P2P, P2B and mini-bonds</b>) are
subject to income tax at the individual's marginal tax rate.</span></span></div>
<div abp="537" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="538" lang="EN-GB"><o:p abp="539"><span abp="540" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="541">
</div>
<div abp="542" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="543"><span abp="544" lang="EN-GB"><span abp="545" style="font-family: Calibri;">Mini-bonds are a
disaster in the making. Investors who are willing to take on more risk for a
higher return, might consider investing in a high yield - junk bond -
investment trust or exchange traded fund (ETF). These funds diversify their
holdings, they can be bought and sold on the London stock market and they are
eligible for inclusion in an ISA.<o:p abp="546"></o:p></span></span></b></div>
<div abp="547">
</div>
<div abp="548" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="549" lang="EN-GB"><span abp="550" style="font-family: Calibri;">------------------------------------------------------------------</span></span></div>
<div abp="551">
</div>
<div abp="552" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="553" lang="EN-GB"><o:p abp="554"><span abp="555" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="556">
</div>
<h3 abp="557" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="559" lang="EN-US" style="mso-ansi-language: EN-US;"><span style="color: #660000;">New City
High Yield Investment Trust<o:p abp="561"></o:p></span></span></h3>
<div abp="562">
</div>
<div abp="563" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b abp="564"><span abp="565" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="566"><span abp="567" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="568">
</div>
<div abp="569" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="570" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="571"><span abp="572" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="573">
</div>
<div abp="574" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="575" style="font-family: Calibri;"><b abp="576"><span abp="577" lang="EN-GB">New City High Yield
Investment Trust (New City)</span></b><span abp="578" lang="EN-GB"> <b abp="579">offers a running
yield of 6.4%</b> at its current price of 64p. As the investment trust is
registered in Jersey, it pays the interest gross of tax, and it is eligible for
an ISA. The shares are priced at a 4% premium to net asset value.</span></span></div>
<div abp="580">
<span abp="582" lang="EN-GB"><o:p abp="583"><span abp="584" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="585">
</div>
<div abp="586" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="587" style="font-family: Calibri;"><b abp="588"><span abp="589" lang="EN-GB">New City</span></b><span abp="590" lang="EN-GB"> invests 84% of its capital in fixed interest and 16% in convertible
bonds and equity. </span><span abp="591" lang="EN-US" style="mso-ansi-language: EN-US;">The
largest single holding accounts for 3.3% of <b abp="592">New City's</b> assets, and the
company has a market capitalisation of 154 million pounds. 63% of its assets
are denominated in sterling, with most of the remainder in US dollars. Administration,
dealing and fee expenses (TER) amount to 1.2% of net assets.<o:p abp="593"></o:p></span></span></div>
<div abp="594">
<span abp="596" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="597"><span abp="598" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="599">
</div>
<div abp="600" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="601" style="font-family: Calibri;"><b abp="602"><span abp="603" lang="EN-US" style="mso-ansi-language: EN-US;">Investor returns</span></b><span abp="604" lang="EN-US" style="mso-ansi-language: EN-US;"> (based on the share price** in blue, net assets in red) for the past
five years exceed the FTSE 350 High Yield Index (in olive) that this investment
trust uses as a benchmark.</span></span></div>
<div abp="607" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="608" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="609" style="font-family: Calibri;">**Includes reinvested income.<o:p abp="610"></o:p></span></span></div>
<div abp="611">
</div>
<div abp="612" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="613" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="614"><span abp="615" style="font-family: Calibri;"> </span></o:p></span><div abp="851" class="separator" style="clear: both; text-align: center;">
<span abp="615" style="font-family: Calibri;"><a abp="852" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5oVWTfKdWNKri6X44IgOQMXvcD0R7pf7WH9SGrKtXHxmxgS6JCCTya2xDxMI4dSMI2AsIX4WFEcdOqGCPtZwFE3TdFJgovQIWqjoTrfuG5j1OLpCMmnBapsPuMGc45ZLzl15nJCOXIhs/s1600/New+City+High+Yield+vs+FTSE+350+H+yield.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="853" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5oVWTfKdWNKri6X44IgOQMXvcD0R7pf7WH9SGrKtXHxmxgS6JCCTya2xDxMI4dSMI2AsIX4WFEcdOqGCPtZwFE3TdFJgovQIWqjoTrfuG5j1OLpCMmnBapsPuMGc45ZLzl15nJCOXIhs/s1600/New+City+High+Yield+vs+FTSE+350+H+yield.png" height="141" width="400" /></a></span></div>
<br />
<div abp="616" style="text-align: center;">
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height:150.75pt;visibility:visible;mso-wrap-style:square'>
<v:imagedata src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image005.png"
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<div abp="623" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="624" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="625" style="font-family: Calibri;">Graph courtesy <i abp="626">Investors Chronicle</i>, click to
enlarge<o:p abp="627"></o:p></span></span></div>
<div abp="628">
</div>
<div abp="629" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="630" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p abp="631"><span abp="632" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="633">
</div>
<div abp="634" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="635" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="636" style="font-family: Calibri;">One attraction of <b abp="637">New City</b> is that it has increased its dividend
every year since it was launched in 2007, averaging an increase of 2.8%.
Another is that its net income has exceeded its dividend payouts, so that it
has built up a revenue reserve worth over 12 million pounds that it could
distribute. And one of the directors owns 2.2% of <b abp="638">New City's</b> issued
capital, worth 3.5 million pounds.</span></span></div>
<div abp="641" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="642" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="643"><span abp="644" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="645">
</div>
<div abp="646" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="647" style="font-family: Calibri;"><b abp="648"><span abp="649" lang="EN-US" style="mso-ansi-language: EN-US;">For investors who prefer a passive fund</span></b><span abp="650" lang="EN-US" style="mso-ansi-language: EN-US;">, <b abp="651">the ishares Global High Income Corporate
Bond Hedged ETF (GHYS) offers a running yield of 6.8%.</b> Expenses (TER) are
0.55%. The fund is sterling based and hedges for the US dollar, the Euro and
the Canadian dollar. As it was only launched in June, historical data is too
short to be of any interest.</span></span></div>
<div abp="654" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="655" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="656"><span abp="657" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="658">
</div>
<div abp="659" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="660" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="661" style="font-family: Calibri;">While <b abp="662">New City</b> and <b abp="663">GHYS </b>offer investors a less risky
alternative to <b abp="664">mini-bonds, P2P or P2B</b>, an investor will want to
consider:</span></span></div>
<div abp="667" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="668" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="669"><span abp="670" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="671">
</div>
<div abp="672" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="673" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="674" style="font-family: Calibri;">1. <b abp="675">The yield spread</b> of junk bonds over gilts is back down to the
pre-crisis level of 2007. Increasing gilt yields would almost certainly be
accompanied by a fall in the price of <b abp="676">New City's</b> and <b abp="677">GHYS's</b> junk
bonds. Past returns are flattered by the abnormally low default rate on junk
debt.</span></span></div>
<div abp="680" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="681" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="682"><span abp="683" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="684">
</div>
<div abp="685" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="686" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="687" style="font-family: Calibri;">2. <b abp="688">The recent low default</b> <b abp="689">rate</b> on junk bonds has surprised
financial commentators. It may be due to the low interest rates that weak
companies pay for their loans. If so, and if interest rates were to increase
sharply, then the default rate might rise.<span abp="690" style="mso-spacerun: yes;">
</span><o:p abp="691"></o:p></span></span></div>
<div abp="692">
<span abp="694" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="695"><span abp="696" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="697">
</div>
<div abp="698" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="699" style="font-family: Calibri;"><span abp="700" lang="EN-US" style="mso-ansi-language: EN-US;">3. <b abp="701">New City</b> borrows about 8% of its gross funds and it may borrow
up to 10%. While this leverage improves returns when they are positive, it further
depresses returns when they are loss making. <b abp="702">GHYS</b> does not leverage its
investments.</span><span abp="703" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p abp="704"></o:p></span></span></div>
<div abp="705">
</div>
<div abp="706" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span abp="707" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="708"><span abp="709" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="710">
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-88782514375754217362013-12-13T10:40:00.001+00:002013-12-13T15:17:38.147+00:00<div abp="961">
</div>
<h3 abp="962" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span style="color: #20124d;">A Tale of Four Loan Markets (2): Peer to
Business Lending<o:p abp="180"></o:p></span></h3>
<div abp="967">
</div>
<h4 abp="968" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="970" lang="EN-US" style="mso-ansi-language: EN-US;"><span style="color: #660000;">And the ORB Market<o:p abp="972"></o:p></span></span></h4>
<div abp="973">
</div>
<div abp="282" class="separator" style="clear: both; text-align: center;">
<a abp="283" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpD_v7b_rEfgede3FesvMNvkdiAlhukTI22T0VJypZfpStdmtIOGAECRtY4GkYs6V7Efr-6nazvcwdkuxqtL6e0iZ0ih7yTuW13EwtamhzCMDxmSVvdD2GWPjfmW0jzNhL3qg98-eBkcQ/s1600/250px-Shakespeare+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="284" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpD_v7b_rEfgede3FesvMNvkdiAlhukTI22T0VJypZfpStdmtIOGAECRtY4GkYs6V7Efr-6nazvcwdkuxqtL6e0iZ0ih7yTuW13EwtamhzCMDxmSVvdD2GWPjfmW0jzNhL3qg98-eBkcQ/s1600/250px-Shakespeare+wiki.jpg" /></a></div>
<h3 abp="974" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
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</v:shape><![endif]--><!--[if !vml]--><!--[endif]--></span><span abp="979" lang="EN-US" style="mso-ansi-language: EN-US;"></span></h3>
<div abp="982" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="983" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="984" style="font-family: Calibri;">William Shakespeare, an investor, courtesy Wikipedia<o:p abp="985"></o:p></span></span></div>
<div abp="986">
</div>
<div abp="987" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="988" lang="EN-US" style="mso-ansi-language: EN-US;"></span><br /></div>
<div abp="992" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="993" style="font-family: Calibri;"><b abp="994"><span abp="995" lang="EN-US" style="mso-ansi-language: EN-US;">Several years before his death</span></b><span abp="996" lang="EN-US" style="mso-ansi-language: EN-US;">, Shakespeare retired to Stratford upon Avon.
He had accumulated a large patrimony of "barns, stables, orchards,
gardens, lands, tenements and</span><span abp="997" lang="EN-GB"> hereditaments</span><span abp="998" lang="EN-US" style="mso-ansi-language: EN-US;">", according to his Will, that
he leased for rent. These income-producing assets were not without risk of
default, but he knew the leaseholders and owned the properties. Most were not
far from his home in Stratford.</span></span></div>
<div abp="992" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="993" style="font-family: Calibri;"><span abp="998" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="999"></o:p></span></span> </div>
<div abp="1000">
</div>
<div abp="1006" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1007" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1008" style="font-family: Calibri;">Shakespeare took a time-honoured route to accumulating capital. In a
matter of only a few years, individual savers have been offered routes that
bypass the traditional institutions - the banks and official markets. P2P, P2B
and the so-called 'mini-bonds'.<o:p abp="1009"></o:p></span></span></div>
<div abp="1010">
</div>
<div abp="1011" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1012" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1013"><span abp="1014" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1015">
</div>
<div abp="1016" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1017"><u abp="1018"><span abp="1019" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1020" style="font-family: Calibri;"><span style="color: #20124d;">Peer
to Business (P2B) Lending<o:p abp="1021"></o:p></span></span></span></u></b></div>
<div abp="1022">
</div>
<div abp="1023" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1024" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1025"><span abp="1026" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1027">
</div>
<div abp="1028" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1029" style="font-family: Calibri;"><b abp="1030"><span abp="1031" lang="EN-US" style="mso-ansi-language: EN-US;">Funding Circle</span></b><span abp="1032" lang="EN-US" style="mso-ansi-language: EN-US;">
launched <b abp="1033">P2B</b> in the UK in 2010, since when it has matched loans of 188
million pounds. The procedure for lending funds is similar to <b abp="1034">Zopa's P2P</b>
(see </span><span abp="1035" lang="EN-GB"><a abp="1036" href="http://thejoyfulinvestor.blogspot.co.uk/2013_12_01_archive.html"><span abp="1037" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1038" style="color: blue;">http://thejoyfulinvestor.blogspot.co.uk/2013_12_01_archive.html</span></span></a></span><span abp="1039" lang="EN-US" style="mso-ansi-language: EN-US;">).<o:p abp="1040"></o:p></span></span></div>
<div abp="1041">
<span abp="1043" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1044"><span abp="1045" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1046">
</div>
<div abp="1047" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1048" style="font-family: Calibri;"><b abp="1049"><span abp="1050" lang="EN-US" style="mso-ansi-language: EN-US;">However, unlike the main providers of P2P,</span></b><span abp="1051" lang="EN-US" style="mso-ansi-language: EN-US;"> <b abp="1052">Funding Circle</b> does not have any fund
to protect lenders from default. Instead, the intermediary recommends spreading
your loan over many borrowers. It provides a table of expected returns.<o:p abp="1053"></o:p></span></span></div>
<div abp="1054">
<span abp="1056" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1057"><span abp="1058" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1059">
</div>
<table abp="1060" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 12.5pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1061">
<tr abp="1062" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1063" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 73.75pt;" width="98"><div abp="1064" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1065"><span abp="1066" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1067" style="font-family: Calibri;">Credit rating<o:p abp="1068"></o:p></span></span></b></div>
</td>
<td abp="1069" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 88.55pt;" width="118"><div abp="1070" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1071"><span abp="1072" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1073" style="font-family: Calibri;">Net interest before<o:p abp="1074"></o:p></span></span></b></div>
<div abp="1075" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1076"><span abp="1077" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1078" style="font-family: Calibri;">Default %<o:p abp="1079"></o:p></span></span></b></div>
</td>
<td abp="1080" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1081" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1082"><span abp="1083" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1084" style="font-family: Calibri;">Estimated Annual Default Rate<o:p abp="1085"></o:p></span></span></b></div>
</td>
<td abp="1086" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.8pt;" width="104"><div abp="1087" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1088"><span abp="1089" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1090" style="font-family: Calibri;">Annual fee<o:p abp="1091"></o:p></span></span></b></div>
</td>
<td abp="1092" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1093" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1094"><span abp="1095" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1096" style="font-family: Calibri;">Estimated Annual<o:p abp="1097"></o:p></span></span></b></div>
<div abp="1098" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1099"><span abp="1100" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1101" style="font-family: Calibri;">Return %<o:p abp="1102"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="1103" style="mso-yfti-irow: 1;">
<td abp="1104" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 73.75pt;" width="98"><div abp="1105" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1106" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1107" style="font-family: Calibri;">A<o:p abp="1108"></o:p></span></span></div>
</td>
<td abp="1109" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 88.55pt;" width="118"><div abp="1110" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1111" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1112" style="font-family: Calibri;">6.4%<o:p abp="1113"></o:p></span></span></div>
</td>
<td abp="1114" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1115" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1116" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1117" style="font-family: Calibri;">0.6%<o:p abp="1118"></o:p></span></span></div>
</td>
<td abp="1119" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.8pt;" width="104"><div abp="1120" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1121" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1122" style="font-family: Calibri;">1%<o:p abp="1123"></o:p></span></span></div>
</td>
<td abp="1124" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1125" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1126" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1127" style="font-family: Calibri;">4.8%<o:p abp="1128"></o:p></span></span></div>
</td>
</tr>
<tr abp="1129" style="mso-yfti-irow: 2;">
<td abp="1130" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 73.75pt;" width="98"><div abp="1131" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1132" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1133" style="font-family: Calibri;">A-<o:p abp="1134"></o:p></span></span></div>
</td>
<td abp="1135" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 88.55pt;" width="118"><div abp="1136" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1137" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1138" style="font-family: Calibri;">8.1%<o:p abp="1139"></o:p></span></span></div>
</td>
<td abp="1140" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1141" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1142" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1143" style="font-family: Calibri;">1.5%<o:p abp="1144"></o:p></span></span></div>
</td>
<td abp="1145" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.8pt;" width="104"><div abp="1146" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1147" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1148" style="font-family: Calibri;">1%<o:p abp="1149"></o:p></span></span></div>
</td>
<td abp="1150" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1151" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1152" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1153" style="font-family: Calibri;">5.6%<o:p abp="1154"></o:p></span></span></div>
</td>
</tr>
<tr abp="1155" style="mso-yfti-irow: 3;">
<td abp="1156" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 73.75pt;" width="98"><div abp="1157" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1158" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1159" style="font-family: Calibri;">B<o:p abp="1160"></o:p></span></span></div>
</td>
<td abp="1161" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 88.55pt;" width="118"><div abp="1162" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1163" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1164" style="font-family: Calibri;">9.1%<o:p abp="1165"></o:p></span></span></div>
</td>
<td abp="1166" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1167" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1168" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1169" style="font-family: Calibri;">2.3%<o:p abp="1170"></o:p></span></span></div>
</td>
<td abp="1171" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.8pt;" width="104"><div abp="1172" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1173" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1174" style="font-family: Calibri;">1%<o:p abp="1175"></o:p></span></span></div>
</td>
<td abp="1176" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1177" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1178" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1179" style="font-family: Calibri;">5.8%<o:p abp="1180"></o:p></span></span></div>
</td>
</tr>
<tr abp="1181" style="mso-yfti-irow: 4;">
<td abp="1182" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 73.75pt;" width="98"><div abp="1183" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1184" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1185" style="font-family: Calibri;">C<o:p abp="1186"></o:p></span></span></div>
</td>
<td abp="1187" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 88.55pt;" width="118"><div abp="1188" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1189" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1190" style="font-family: Calibri;">10.1%<o:p abp="1191"></o:p></span></span></div>
</td>
<td abp="1192" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1193" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1194" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1195" style="font-family: Calibri;">3.3%<o:p abp="1196"></o:p></span></span></div>
</td>
<td abp="1197" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.8pt;" width="104"><div abp="1198" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1199" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1200" style="font-family: Calibri;">1%<o:p abp="1201"></o:p></span></span></div>
</td>
<td abp="1202" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1203" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1204" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1205" style="font-family: Calibri;">5.8%<o:p abp="1206"></o:p></span></span></div>
</td>
</tr>
<tr abp="1207" style="mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td abp="1208" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 73.75pt;" width="98"><div abp="1209" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1210" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1211" style="font-family: Calibri;">C-<o:p abp="1212"></o:p></span></span></div>
</td>
<td abp="1213" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 88.55pt;" width="118"><div abp="1214" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1215" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1216" style="font-family: Calibri;">11.7%<o:p abp="1217"></o:p></span></span></div>
</td>
<td abp="1218" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1219" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1220" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1221" style="font-family: Calibri;">5.0%<o:p abp="1222"></o:p></span></span></div>
</td>
<td abp="1223" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 77.8pt;" width="104"><div abp="1224" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1225" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1226" style="font-family: Calibri;">1%<o:p abp="1227"></o:p></span></span></div>
</td>
<td abp="1228" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 91.7pt;" width="122"><div abp="1229" align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="1230" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1231" style="font-family: Calibri;">5.7%<o:p abp="1232"></o:p></span></span></div>
</td>
</tr>
</tbody></table>
<div abp="1233">
</div>
<div abp="1234" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1235" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1236"><span abp="1237" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1239" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1240" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1241" style="font-family: Calibri;">According to <b abp="1242">Funding Circle</b>, the average return for the saver is
5.7%. The interest rate that the borrower pays is between 1 and 2% above the
rates quoted in the left-hand column of the table, with the difference going to
the intermediary. </span></span></div>
<div abp="1239" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1240" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1241" style="font-family: Calibri;"><o:p abp="1243"></o:p></span></span> </div>
<div abp="1244">
</div>
<div abp="1250" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1251"><span abp="1252" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1253" style="font-family: Calibri;">Typical borrowers are:</span></span></b></div>
<div abp="1250" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1251"><span abp="1252" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1253" style="font-family: Calibri;"><o:p abp="1254"></o:p></span></span></b> </div>
<div abp="1255">
</div>
<div abp="1256" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1257" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1258" style="mso-list: Ignore;">·<span abp="1259" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1260" dir="LTR"></span><span abp="1261" style="font-family: Calibri;"><b abp="1262"><span abp="1263" lang="EN-US" style="mso-ansi-language: EN-US;">Accountants</span></b><span abp="1264" lang="EN-US" style="mso-ansi-language: EN-US;"> requiring funds for expansion. 30,000 pounds
for 4 years, with an 'A' credit rating paying an average interest rate of 7.9%
p.a. to <b abp="1265">Funding Circle</b>.<o:p abp="1266"></o:p></span></span></div>
<div abp="1267">
</div>
<div abp="1268" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1269" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1270" style="mso-list: Ignore;">·<span abp="1271" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1272" dir="LTR"></span><span abp="1273" style="font-family: Calibri;"><b abp="1274"><span abp="1275" lang="EN-US" style="mso-ansi-language: EN-US;">Ecommerce</span></b><span abp="1276" lang="EN-US" style="mso-ansi-language: EN-US;"> expansion with a 'B' credit rating, 100,000
pounds for 3 years, paying an average interest rate of 10.6%<o:p abp="1277"></o:p></span></span></div>
<div abp="1278">
</div>
<div abp="1279" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="1280" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="1281" style="mso-list: Ignore;">·<span abp="1282" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="1283" dir="LTR"></span><span abp="1284" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1285" style="font-family: Calibri;">100,000 pounds for 5 years for a <b abp="1286">Sushi
restaurant</b> with a 'C' credit rating, paying an average interest rate of
10.6%. <o:p abp="1287"></o:p></span></span></div>
<div abp="1288">
</div>
<div abp="1289" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 18pt; text-align: justify;">
<span abp="1290" lang="EN-US" style="mso-ansi-language: EN-US;"></span><br /></div>
<div abp="1294" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1295" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1296" style="font-family: Calibri;">In all three cases, the directors guarantee the loan, but there is no lien
on any assets held by the business. The credit ratings come from Experian and
Equifax, who are private enterprises that sell credit checks for profit. </span></span></div>
<div abp="1294" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1295" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1296" style="font-family: Calibri;"><o:p abp="1297"></o:p></span></span> </div>
<div abp="1298">
</div>
<div abp="1303">
</div>
<div abp="1304" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1305" style="font-family: Calibri;"><b abp="1306"><span abp="1307" lang="EN-US" style="mso-ansi-language: EN-US;">Unlike Shakespeare</span></b><span abp="1308" lang="EN-US" style="mso-ansi-language: EN-US;">, lenders to <b abp="1309">Funding Circle</b> do not own any assets. The capital
value of the loan is as much at risk as the income it provides. <b abp="1310">Funding
Circle's</b> estimate of the risk of default is based on a very short period of
operation, and the credit ratings must be taken with a pinch of salt. </span></span></div>
<div abp="1304" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1305" style="font-family: Calibri;"><span abp="1308" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1311"></o:p></span></span> </div>
<div abp="1312">
</div>
<div abp="1317">
</div>
<div abp="1318" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1319" style="font-family: Calibri;"><b abp="1320"><span abp="1321" lang="EN-US" style="mso-ansi-language: EN-US;">However, the government</span></b><span abp="1322" lang="EN-US" style="mso-ansi-language: EN-US;"> is so enamoured with alternative ways of funding small and medium
enterprises (SMEs), that it is financially supporting <b abp="1323">P2B</b>. Some of the
loans are matched to 10% by the government. Unfortunately for the lender, this
does not include any guarantee of the sums loaned.</span></span></div>
<div abp="1318" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1319" style="font-family: Calibri;"><span abp="1322" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1324"></o:p></span></span> </div>
<div abp="1325">
<span abp="1327" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1328"><span abp="1329" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1330">
</div>
<div abp="1331" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1332" style="font-family: Calibri;"><b abp="1333"><span abp="1334" lang="EN-US" style="mso-ansi-language: EN-US;">Funding Circle, like the P2P intermediaries Zopa and RateSetter, is a
small concern. </span></b><span abp="1335" lang="EN-US" style="mso-ansi-language: EN-US;">It
has a net worth of 6.5 million pounds and it has launched a similar business in
the USA. In the event that <b abp="1336">Funding Circle</b> fails, lenders are promised
the support of <b abp="1337">Link Financial Outsourcing Ltd</b>, a debt collection agency.
Lenders are told that <b abp="1338">Link</b> may not charge them more than 2% for its
services, but it is impossible to know how much of the loans made through <b abp="1339">Funding
Circle </b>would be collected. And <b abp="1340">Link</b> itself is a small company with a
net worth of 5.2 million pounds.<o:p abp="1341"></o:p></span></span></div>
<div abp="1342">
</div>
<div abp="1343" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1344" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1345"><span abp="1346" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1347">
</div>
<div abp="1348" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1349"><u abp="1350"><span abp="1351" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1352" style="font-family: Calibri;"><span style="color: #20124d;">Order
Book for Retail Bonds (ORB)<o:p abp="1353"></o:p></span></span></span></u></b></div>
<div abp="1354">
</div>
<div abp="1355" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1356" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1357"><span abp="1358" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1359">
</div>
<div abp="1360" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1361" style="font-family: Calibri;"><b abp="1362"><span abp="1363" lang="EN-US" style="mso-ansi-language: EN-US;">The London Stock Exchange launched a new market to sell UK government (Gilts),
supranational, local government and corporate bonds to retail investors in
February 2010.</span></b><span abp="1364" lang="EN-US" style="mso-ansi-language: EN-US;">
Although retail investors have always had access to Gilts, Eurobonds and
Convertibles, <b abp="1365">ORB</b> offers an easier and cheaper way of buying bonds and
in smaller quantities - as low as 1,000 pounds initially and 100 pounds
thereafter. Individuals can now buy these securities online at their usual
broker. <b abp="1366">ORB</b> has also encouraged smaller and less credit worthy
businesses to sell bonds to the public.<o:p abp="1367"></o:p></span></span></div>
<div abp="1368">
<span abp="1370" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1371"><span abp="1372" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1373">
</div>
<div abp="1374" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1375" style="font-family: Calibri;"><b abp="1376"><span abp="1377" lang="EN-US" style="mso-ansi-language: EN-US;">ORB had a retail turnover of 11.2 billion pounds</span></b><span abp="1378" lang="EN-US" style="mso-ansi-language: EN-US;"> in the month of November 2013. The
largest single bond was <b abp="1379">National Grid's 'linker'. </b>It offers 1.25% over
the annual increase in the Retail Price Index and it matures 6 October 2021.
Coupons are paid half-yearly and the bond is currently priced at 109p.<o:p abp="1380"></o:p></span></span></div>
<div abp="1381">
<span abp="1383" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1384"><span abp="1385" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1386">
</div>
<div abp="1387" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1388" style="font-family: Calibri;"><b abp="1389"><span abp="1390" lang="EN-US" style="mso-ansi-language: EN-US;">A variety of bonds is on offer</span></b><span abp="1391" lang="EN-US" style="mso-ansi-language: EN-US;">. These include fixed rate (or conventional)
bonds, floating rate notes, index linked bonds ('linkers'), zero coupon bonds
and convertible bonds. And <b abp="1392">ORB</b> has a liquid secondary market.<o:p abp="1393"></o:p></span></span></div>
<div abp="1394">
<span abp="1396" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1397"><span abp="1398" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1399">
</div>
<div abp="1400" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1401" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1402" style="font-family: Calibri;">The Financial Conduct Authority oversees <b abp="1403">ORB</b> and, as a result,
the information available to the public is complete. <o:p abp="1404"></o:p></span></span></div>
<div abp="1405">
<span abp="1407" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1408"><span abp="1409" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1410">
</div>
<div abp="1411" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1412" style="font-family: Calibri;"><b abp="1413"><span abp="1414" lang="EN-US" style="mso-ansi-language: EN-US;">Places for People</span></b><span abp="1415" lang="EN-US" style="mso-ansi-language: EN-US;"> is but one of many UK property companies to tap the <b abp="1416">ORB</b> market.
Its prospectus for the bond it issued in June 2011 runs to 92 pages. Moody's
gives the bond an Aa3 rating and, at the current price of 106.2, it yields 2.8%
to maturity in 3 years time. This is a conventional bond with a coupon fixed
at 5% and its maturity date fixed for 27 December 2016.<o:p abp="1417"></o:p></span></span></div>
<div abp="1418">
<span abp="1420" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1421"><span abp="1422" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1423">
</div>
<div abp="1424" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1425" style="font-family: Calibri;"><b abp="1426"><span abp="1427" lang="EN-US" style="mso-ansi-language: EN-US;">For investors wishing to use the tax shelter of an ISA or SIPP</span></b><span abp="1428" lang="EN-US" style="mso-ansi-language: EN-US;">, any <b abp="1429">ORB</b> bond with a
maturity exceeding 5 years is eligible for inclusion. This is a clear advantage
over P2P and P2B loans, which are not eligible for an ISA or SIPP. <o:p abp="1430"></o:p></span></span></div>
<div abp="1431">
<span abp="1433" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1434"><span abp="1435" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1436">
</div>
<div abp="1437" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1438" style="font-family: Calibri;"><b abp="1439"><span abp="1440" lang="EN-US" style="mso-ansi-language: EN-US;">One such eligible bond was recently issued by Bruntwood Investments, </span></b><span abp="1441" lang="EN-US" style="mso-ansi-language: EN-US;">a large, private property company.<span abp="1442" style="mso-spacerun: yes;"> </span>Its 6% 24 July 2020 bond yields 5.0% to
redemption at its current price of 105.7. Although the bond is not rated by any
credit agency, it has a charge on <b abp="1443">Bruntwood's</b> properties. Pieces as
small as 100 pound face value (106 pounds) may be bought on the secondary
market. <b abp="1444">Bruntwood</b> may redeem the bond early by paying the higher of par
(i.e. 100) or the equivalent price of a 4.75% Gilt maturing in 2020 +0.5%. This
would currently be much higher than the price of the bonds. Were Gilt prices to
fall, then <b abp="1445">Bruntwood</b> could redeem the bonds at a lower price. But in
this scenario, <b abp="1446">Bruntwood's</b> bond would also have declined in value on the
secondary market. <o:p abp="1447"></o:p></span></span></div>
<div abp="1448">
</div>
<div abp="1449" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1450"><span abp="1451" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1452"><span abp="1453" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="1454">
</div>
<div abp="1455" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1456"><u abp="1457"><span abp="1458" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1459" style="font-family: Calibri;"><span style="color: #20124d;">Conclusion</span></span></span></u></b></div>
<div abp="1455" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b abp="1456"><u abp="1457"><span abp="1458" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1459" style="font-family: Calibri;"><span style="color: #20124d;"><o:p abp="1460"></o:p></span></span></span></u></b> </div>
<div abp="1461">
</div>
<div abp="1462" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1463" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1464"><span abp="1465" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1467" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1468" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1469" style="font-family: Calibri;">The <b abp="1470">ORB</b> bond market offers the individual investor the
opportunity of creating a portfolio of bonds that fit his or her requirements.
In the secondary market, individuals can invest as little as 100 pounds. <b abp="1471">Funding
Circle's P2B</b> offers better rates to the saver than a bank and, very often,
than a bond traded on <b abp="1472">ORB. </b></span></span></div>
<div abp="1467" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1468" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1469" style="font-family: Calibri;"><strong></strong><o:p abp="1473"></o:p></span></span> </div>
<div abp="1474">
</div>
<div abp="1479">
</div>
<table abp="1480" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 62.95pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="1481">
<tr abp="1482" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="1483" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1484" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1485"><span abp="1486" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1487" style="font-family: Calibri;">Interest rates for lenders/savers<o:p abp="1488"></o:p></span></span></b></div>
</td>
<td abp="1489" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1490" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1491"><span abp="1492" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1493" style="font-family: Calibri;">Best bank<o:p abp="1494"></o:p></span></span></b></div>
</td>
<td abp="1495" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1496" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1497"><span abp="1498" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1499" style="font-family: Calibri;">Funding<o:p abp="1500"></o:p></span></span></b></div>
<div abp="1501" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1502"><span abp="1503" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1504" style="font-family: Calibri;">Circle<o:p abp="1505"></o:p></span></span></b></div>
</td>
<td abp="1506" colspan="2" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 33.9pt;" valign="top" width="45"><div abp="1507" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1508"><span abp="1509" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1510" style="font-family: Calibri;">ORB<o:p abp="1511"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="1512" style="mso-row-margin-right: .7pt; mso-yfti-irow: 1;">
<td abp="1513" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1514" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1515" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1516" style="font-family: Calibri;">3 years<o:p abp="1517"></o:p></span></span></div>
</td>
<td abp="1518" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1519" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1520" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1521" style="font-family: Calibri;">2.65%<o:p abp="1522"></o:p></span></span></div>
</td>
<td abp="1523" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1524" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1525" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1526" style="font-family: Calibri;">5.7%<o:p abp="1527"></o:p></span></span></div>
</td>
<td abp="1528" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1529" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1530" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1531" style="font-family: Calibri;">2 to 4%<o:p abp="1532"></o:p></span></span></div>
</td>
<td abp="1533" style="background-color: transparent; border: 0px rgb(0, 0, 0); mso-cell-special: placeholder; padding: 0cm;" width="1"><div abp="1534" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span abp="1535" style="font-family: Calibri;"> </span></div>
</td>
</tr>
<tr abp="1536" style="mso-row-margin-right: .7pt; mso-yfti-irow: 2; mso-yfti-lastrow: yes;">
<td abp="1537" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1538" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1539" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1540" style="font-family: Calibri;">5 years<o:p abp="1541"></o:p></span></span></div>
</td>
<td abp="1542" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1543" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1544" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1545" style="font-family: Calibri;">3.15%<o:p abp="1546"></o:p></span></span></div>
</td>
<td abp="1547" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1548" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1549" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1550" style="font-family: Calibri;">5.7%<o:p abp="1551"></o:p></span></span></div>
</td>
<td abp="1552" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top"><div abp="1553" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1554" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1555" style="font-family: Calibri;">3 to 6%<o:p abp="1556"></o:p></span></span></div>
</td>
<td abp="1557" style="background-color: transparent; border: 0px rgb(0, 0, 0); mso-cell-special: placeholder; padding: 0cm;" width="1"><div abp="1558" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span abp="1559" style="font-family: Calibri;"> </span></div>
</td>
</tr>
</tbody></table>
<div abp="1560">
</div>
<div abp="1561" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1562" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1563"><span abp="1564" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1566" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1567" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1568" style="font-family: Calibri;">However, Bank interest and <b abp="1569">ORB</b> bonds (with 5 years duration) are tax-free
for ISA and SIPP holders, who may not use <b abp="1570">P2B</b>. Consequently, for 40%
rate taxpayers the alternatives to <b abp="1571">P2B</b> usually offer better after tax
returns.</span></span><br />
<span abp="1567" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1568" style="font-family: Calibri;"><o:p abp="1572"></o:p></span></span> </div>
<div abp="1573">
</div>
<div abp="1579">
</div>
<div abp="1580" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="1581"><span abp="1582" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1583" style="font-family: Calibri;">And P2B is a much more risky proposition than ORB: <o:p abp="1584"></o:p></span></span></b></div>
<div abp="1585">
<span abp="1587" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1588"><span abp="1589" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1590">
</div>
<div abp="1591" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1592" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1593" style="font-family: Calibri;">1. <b abp="1594">P2B loans</b> are for small businesses that might, and do,
disappear. <b abp="1595">ORB bonds</b> are issued by the UK government or large,
well-known enterprises whose audited accounts are publicly available. The Gilt
and Corporate bond market has a long history.<o:p abp="1596"></o:p></span></span></div>
<div abp="1597">
<span abp="1599" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1600"><span abp="1601" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1602">
</div>
<div abp="1603" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1604" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1605" style="font-family: Calibri;">2.<span abp="1606" style="mso-spacerun: yes;"> </span><b abp="1607">The vetting procedure</b>
for <b abp="1608">P2B</b> is quick & easy and superficial. <b abp="1609">ORB</b> issuers must
prepare a prospectus and the vetting procedure is based on a long experience of
bond defaults.<o:p abp="1610"></o:p></span></span></div>
<div abp="1611">
</div>
<div abp="1612" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1613" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1614"><span abp="1615" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1617" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1618" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1619" style="font-family: Calibri;">3.<span abp="1620" style="mso-spacerun: yes;"> </span><b abp="1621">P2B loans</b> are backed
only by the directors. <b abp="1622">ORB issuers</b> come with credit ratings by the big
agencies and/or are backed by valuable assets<o:p abp="1623"></o:p></span></span></div>
<div abp="1624">
</div>
<div abp="1625" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1626" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1627"><span abp="1628" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1630" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1631" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1632" style="font-family: Calibri;">4. <strong>The companies that organise the</strong> <b abp="1633">P2B</b> market are small and
lightly regulated by the Office of Fair Trading. A failure by an intermediary
will almost certainly lead to lenders losing money. Meanwhile <b abp="1634">ORB</b> is
part of the London Stock Exchange and it is regulated by the Financial Conduct
Authority. However, this does not eliminate the risk of a default on <b abp="1635">ORB</b>.<o:p abp="1636"></o:p></span></span></div>
<div abp="1637">
<span abp="1639" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1640"><span abp="1641" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1642">
</div>
<div abp="1643" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1644" style="font-family: Calibri;"><span abp="1645" lang="EN-GB">5. <strong>The notional returns
on</strong> <b abp="1646">P2B</b> may be overstated, as this is a new market with little experience
of loan defaults. On the other hand, for very small sums <b abp="1647">P2B</b> offers
lower transaction costs.</span><span abp="1648" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1649"></o:p></span></span></div>
<div abp="1650">
<span abp="1652" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="1653"><span abp="1654" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="1655">
</div>
<div abp="1656" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="1657" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1658" style="font-family: Calibri;">6. <strong>The secondary market for</strong> <b abp="1659">ORB</b> is very liquid. In the case of <b abp="1660">P2B</b>,
if the borrower is behind on his payments, the lender cannot sell on the loan. <o:p abp="1661"></o:p></span></span></div>
<div abp="1662">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com1tag:blogger.com,1999:blog-6123577473607160262.post-21885636645562559392013-12-05T13:09:00.000+00:002013-12-05T13:09:44.855+00:00<div abp="179">
</div>
<h3 abp="180" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="181" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1181" style="color: #20124d;">A Tale of Four Loan Markets (1)<o:p abp="1182"></o:p></span></span></h3>
<div abp="184">
</div>
<h4 abp="185" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="186" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="188" style="mso-spacerun: yes;"> </span><span abp="1183" style="color: #660000;">Peer to Peer
Lending: Zopa and RateSetter</span> <o:p abp="189"></o:p></span></h4>
<div abp="190">
</div>
<div abp="1103" class="separator" style="clear: both; text-align: center;">
<a abp="1104" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLJFwNWvV395Noxq4GCiU0jfgMgboQfpwAivM9UGM70ZWI6iA_T_aL01_Gq_OHtjw3tooh8zpznC4lG26CW5YgCKiobAF7dzr5PBBQXTq-2ykXrQKttvXlC8G3nvEriHjqKr8V6zLE_5w/s1600/Early+banknote+about+940+AD+China.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1105" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLJFwNWvV395Noxq4GCiU0jfgMgboQfpwAivM9UGM70ZWI6iA_T_aL01_Gq_OHtjw3tooh8zpznC4lG26CW5YgCKiobAF7dzr5PBBQXTq-2ykXrQKttvXlC8G3nvEriHjqKr8V6zLE_5w/s1600/Early+banknote+about+940+AD+China.jpg" height="320" width="183" /></a></div>
<div abp="193" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="194" style="font-family: Calibri;"><b abp="195"><span abp="196" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shapetype abp="197" coordsize="21600,21600" filled="f" id="_x0000_t75" o:preferrelative="t" o:spt="75" path="m@4@5l@4@11@9@11@9@5xe" stroked="f"><v:stroke abp="198" joinstyle="miter"><v:formulas abp="199"><v:f abp="200" eqn="if lineDrawn pixelLineWidth 0"><v:f abp="201" eqn="sum @0 1 0"><v:f abp="202" eqn="sum 0 0 @1"><v:f abp="203" eqn="prod @2 1 2"><v:f abp="204" eqn="prod @3 21600 pixelWidth"><v:f abp="205" eqn="prod @3 21600 pixelHeight"><v:f abp="206" eqn="sum @0 0 1"><v:f abp="207" eqn="prod @6 1 2"><v:f abp="208" eqn="prod @7 21600 pixelWidth"><v:f abp="209" eqn="sum @8 21600 0"><v:f abp="210" eqn="prod @7 21600 pixelHeight"><v:path abp="212" gradientshapeok="t" o:connecttype="rect" o:extrusionok="f"><v:shape abp="214" alt="Early banknote about 940 AD China.jpg" id="Picture_x0020_0" o:spid="_x0000_i1026" style="height: 239.25pt; mso-wrap-style: square; visibility: visible; width: 137.25pt;" type="#_x0000_t75"><v:imagedata abp="215" o:title="Early banknote about 940 AD China" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image001.jpg"></v:imagedata></v:shape></v:path></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:f></v:formulas></v:stroke></v:shapetype></span></b><b abp="216"><span abp="217" lang="EN-US" style="mso-ansi-language: EN-US;"></span></b></span><br /></div>
<div abp="220" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="221" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="222" style="font-family: Calibri;">Early banknote @AD 940, China, courtesy Wikipedia<o:p abp="223"></o:p></span></span></div>
<div abp="224">
</div>
<div abp="225" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<b abp="226"><span abp="227" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="228"><span abp="229" style="font-family: Calibri;"> </span></o:p></span></b></div>
<div abp="231" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="232" style="font-family: Calibri;"><b abp="233"><span abp="234" lang="EN-US" style="mso-ansi-language: EN-US;">Prolonged
low savings rates coupled with a reduction in bank lending</span></b><span abp="235" lang="EN-US" style="mso-ansi-language: EN-US;"> has led to fringe banking that
excludes the traditional banking sector. <o:p abp="236"></o:p></span></span></div>
<div abp="237" style="text-align: justify;">
</div>
<div abp="238" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="239" style="font-family: Calibri;"><b abp="240" style="mso-bidi-font-weight: normal;"><span abp="241" lang="EN-US" style="mso-ansi-language: EN-US;">According to the consumer organization Which?</span></b><span abp="242" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-weight: bold;">,<b abp="243"> the
best savings rates</b></span><span abp="244" lang="EN-US" style="mso-ansi-language: EN-US;">
currently available from the banking sector are:<o:p abp="245"></o:p></span></span></div>
<div abp="246">
</div>
<table abp="247" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 12.5pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="248">
<tr abp="249" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="250" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="251" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="252"><span abp="253" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="254" style="font-family: Calibri;">Bank<o:p abp="255"></o:p></span></span></b></div>
</td>
<td abp="256" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="257" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="258"><span abp="259" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="260" style="font-family: Calibri;">Term<o:p abp="261"></o:p></span></span></b></div>
</td>
<td abp="262" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="263" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="264"><span abp="265" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="266" style="font-family: Calibri;">Minimum deposit in
pounds*<o:p abp="267"></o:p></span></span></b></div>
</td>
<td abp="268" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="269" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<b abp="270"><span abp="271" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="272" style="font-family: Calibri;">APR interest %<o:p abp="273"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="274" style="mso-yfti-irow: 1;">
<td abp="275" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="276" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="277" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="278" style="font-family: Calibri;">Post Office<o:p abp="279"></o:p></span></span></div>
</td>
<td abp="280" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="281" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="282" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="283" style="font-family: Calibri;">30-day call<o:p abp="284"></o:p></span></span></div>
</td>
<td abp="285" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="286" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="287" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="288" style="font-family: Calibri;">500<o:p abp="289"></o:p></span></span></div>
</td>
<td abp="290" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="291" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="292" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="293" style="font-family: Calibri;">1.6%<o:p abp="294"></o:p></span></span></div>
</td>
</tr>
<tr abp="295" style="mso-yfti-irow: 2;">
<td abp="296" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="297" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="298" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="299" style="font-family: Calibri;">Shawbrook Bank<o:p abp="300"></o:p></span></span></div>
</td>
<td abp="301" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="302" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="303" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="304" style="font-family: Calibri;">1 year<o:p abp="305"></o:p></span></span></div>
</td>
<td abp="306" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="307" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="308" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="309" style="font-family: Calibri;">5,000<o:p abp="310"></o:p></span></span></div>
</td>
<td abp="311" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="312" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="313" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="314" style="font-family: Calibri;">1.95%<o:p abp="315"></o:p></span></span></div>
</td>
</tr>
<tr abp="316" style="mso-yfti-irow: 3;">
<td abp="317" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="318" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="319" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="320" style="font-family: Calibri;">FirstSave<o:p abp="321"></o:p></span></span></div>
</td>
<td abp="322" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="323" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="324" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="325" style="font-family: Calibri;">2 years<o:p abp="326"></o:p></span></span></div>
</td>
<td abp="327" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="328" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="329" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="330" style="font-family: Calibri;">1,000<o:p abp="331"></o:p></span></span></div>
</td>
<td abp="332" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="333" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="334" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="335" style="font-family: Calibri;">2.35%<o:p abp="336"></o:p></span></span></div>
</td>
</tr>
<tr abp="337" style="mso-yfti-irow: 4;">
<td abp="338" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="339" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="340" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="341" style="font-family: Calibri;">Shawbrook Bank<o:p abp="342"></o:p></span></span></div>
</td>
<td abp="343" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="344" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="345" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="346" style="font-family: Calibri;">3 years<o:p abp="347"></o:p></span></span></div>
</td>
<td abp="348" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="349" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="350" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="351" style="font-family: Calibri;">5,000<o:p abp="352"></o:p></span></span></div>
</td>
<td abp="353" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="354" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="355" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="356" style="font-family: Calibri;">2.65%<o:p abp="357"></o:p></span></span></div>
</td>
</tr>
<tr abp="358" style="mso-yfti-irow: 5;">
<td abp="359" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="360" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="361" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="362" style="font-family: Calibri;">Vanquis Bank<o:p abp="363"></o:p></span></span></div>
</td>
<td abp="364" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="365" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="366" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="367" style="font-family: Calibri;">4 years<o:p abp="368"></o:p></span></span></div>
</td>
<td abp="369" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="370" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="371" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="372" style="font-family: Calibri;">1,000<o:p abp="373"></o:p></span></span></div>
</td>
<td abp="374" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="375" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="376" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="377" style="font-family: Calibri;">2.91%<o:p abp="378"></o:p></span></span></div>
</td>
</tr>
<tr abp="379" style="mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td abp="380" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 120.5pt;" valign="top" width="161">
<div abp="381" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="382" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="383" style="font-family: Calibri;">FirstSave<o:p abp="384"></o:p></span></span></div>
</td>
<td abp="385" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 83.1pt;" valign="top" width="111">
<div abp="386" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="387" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="388" style="font-family: Calibri;">5 years<o:p abp="389"></o:p></span></span></div>
</td>
<td abp="390" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 101.15pt;" valign="top" width="135">
<div abp="391" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="392" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="393" style="font-family: Calibri;">1,000<o:p abp="394"></o:p></span></span></div>
</td>
<td abp="395" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 3cm;" valign="top" width="113">
<div abp="396" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt;">
<span abp="397" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="398" style="font-family: Calibri;">3.15%<o:p abp="399"></o:p></span></span></div>
</td>
</tr>
</tbody></table>
<div abp="400">
</div>
<div abp="401" class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span abp="402" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="403" style="font-family: Calibri;">*All deposits are guaranteed up to 85,000 pounds by
the Financial Service Compensation Scheme<o:p abp="404"></o:p></span></span></div>
<div abp="405">
</div>
<div abp="406" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="407" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="408" style="font-family: Calibri;">This and subsequent articles on this
blog will focus on the new loan markets, where the risks are much higher than
for bank savings accounts. <span abp="409" style="mso-spacerun: yes;"> </span>While the
Financial Conduct Authority (FCA) or the Office of Fair Trading oversees all
these markets, their characteristics - risk, liquidity, transparency, return
and loan size - vary greatly. <b abp="410">There are four main classes of loans</b>.<o:p abp="411"></o:p></span></span></div>
<div abp="412">
</div>
<div abp="413" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="414" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="415" style="font-family: Calibri;">1. <b abp="416">Peer to Peer lending (P2) - Where
individuals lend to individuals. </b>An intermediary screens and assesses the
risk of the borrower. He matches lenders and borrowers so that the lender's
funds are spread over as many borrowers as possible, thereby reducing the risk
of a single large default. The intermediary, which operates online, takes a fee
from the transaction. Sometimes the intermediary sets up a fund to protect
lenders from borrower defaults. There is no secondary market for the loans,
they are not guaranteed and they are not eligible for independent savings
accounts (ISAs). <o:p abp="417"></o:p></span></span></div>
<div abp="418">
</div>
<div abp="419" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="420" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="421" style="font-family: Calibri;">2<b abp="422">. Peer to Business lending (P2B)
-</b> <b abp="423">Where individuals lend to small businesses</b>. An intermediary
assesses the risks of the borrower and informs the potential lender of the
borrower's rating. The lender bids an interest rate that he or she believes
compensates for the risk profile of that specific borrower.<span abp="424" style="mso-spacerun: yes;"> </span>The lender may bid in small sums, called
'parts', for many different business borrowers. The intermediary matches
borrowers and lenders and takes a fee for this service. There is a secondary
market for these loans, but they are not guaranteed nor are they eligible for
ISAs.<o:p abp="425"></o:p></span></span></div>
<div abp="426">
</div>
<div abp="427" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="428" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="429" style="font-family: Calibri;">3. <b abp="430">Order Book for Retail Bonds
(ORB)</b> - <b abp="431">Where individuals buy bonds from established companies listed on
the London Stock Exchange</b>. Individuals must assess the risk of each
investment and purchase the bonds via a trading platform. <b abp="432">ORB</b> bonds have
a secondary market, they are not guaranteed and, if bought with more than 5
years to maturity, they are eligible for ISAs.<o:p abp="433"></o:p></span></span></div>
<div abp="434">
</div>
<div abp="435" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="436" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="437" style="font-family: Calibri;">4. <b abp="438">Mini-bonds- Where individuals
buy bonds from individual companies directly</b>. The bonds, which are often
unsecured, are marketed directly by the company to the public. The companies
are usually privately held and they are much smaller than <b abp="439">ORB</b> bond
issuing companies, but larger than <b abp="440">P2B</b> loan issuers. They are not
required to provide a detailed prospectus and it is often difficult to assess
their credit worthiness. <b abp="441">Mini-bonds</b> do not have a secondary market, they
are not guaranteed nor are they eligible for ISAs. <o:p abp="442"></o:p></span></span></div>
<div abp="443">
</div>
<div abp="444" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="445" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="446" style="font-family: Calibri;">------------------------------------------------------<o:p abp="447"></o:p></span></span></div>
<div abp="448">
</div>
<h3 abp="449" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="451" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1109" style="color: #660000;">Peer to Peer (P2P) loans<o:p abp="1110"></o:p></span></span></h3>
<div abp="454">
</div>
<div abp="1111" class="separator" style="clear: both; text-align: center;">
<a abp="1112" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0Rd82_3zgN35ViVAvabew_ETT0t-w4RkEKUPfgoHTNuDYZJVp-LGymrf7E5B5PcEannG5-VthpJT1WFLnrPAV1hZW5_R9J8QeQSyTdkRb3iVG4M5HwohgmM9P1hwMBsBBiHp7kRAoS5A/s1600/Five_Presidents_Oval_Office+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="1113" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0Rd82_3zgN35ViVAvabew_ETT0t-w4RkEKUPfgoHTNuDYZJVp-LGymrf7E5B5PcEannG5-VthpJT1WFLnrPAV1hZW5_R9J8QeQSyTdkRb3iVG4M5HwohgmM9P1hwMBsBBiHp7kRAoS5A/s1600/Five_Presidents_Oval_Office+wiki.jpg" height="229" width="320" /></a></div>
<div abp="455" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="456" style="font-family: Calibri;"><span abp="457" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="458" alt="Five_Presidents_Oval_Office wiki.jpg" id="Picture_x0020_1" o:spid="_x0000_i1025" style="height: 207pt; mso-wrap-style: square; visibility: visible; width: 4in;" type="#_x0000_t75"><v:imagedata abp="459" o:title="Five_Presidents_Oval_Office wiki" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.jpg"></v:imagedata></v:shape></span><span abp="460" lang="EN-US" style="mso-ansi-language: EN-US;"></span></span><br /></div>
<div abp="463" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="464" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="465" style="font-family: Calibri;">Five candidates for P2P loans, courtesy Wikipedia<o:p abp="466"></o:p></span></span></div>
<div abp="467">
</div>
<div abp="468" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="469" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="470"><span abp="471" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="472">
</div>
<div abp="473" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="474" style="font-family: Calibri;"><b abp="475"><span abp="476" lang="EN-US" style="mso-ansi-language: EN-US;">P2P got going in 2005</span></b><span abp="477" lang="EN-US" style="mso-ansi-language: EN-US;"> with the idea of using the internet
to match people who wanted to borrow money for relatively small purchases
(20,000 pounds is now the upper limit at <b abp="478">Zopa</b>) with savers who wanted a
better rate of return than they were offered by the banks.<o:p abp="479"></o:p></span></span></div>
<div abp="480">
</div>
<div abp="481" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="482" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="483" style="font-family: Calibri;"><span abp="484" style="mso-spacerun: yes;"> </span>Typical borrowers are people who use the loan
to buy consumer durables (cars, computers etc.), make home improvements or pay
off credit card debt. They are credit screened and assigned a risk rating by
the intermediaries. Consequently, the rate of interest they pay is below that
they would have to pay to a formal lending institution.<o:p abp="485"></o:p></span></span></div>
<div abp="486">
</div>
<div abp="487" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="488" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="489" style="font-family: Calibri;">The average saver lends about 3,500
pounds, though <b abp="490">Zopa</b> claims it has two lenders who are owed over a
million pounds and several hundred who are owed over 100,000 pounds (interview
with the <i abp="491">Guardian</i>, 12 August 2013). <o:p abp="492"></o:p></span></span></div>
<div abp="493">
</div>
<div abp="494" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="495" style="font-family: Calibri;"><b abp="496"><span abp="497" lang="EN-US" style="mso-ansi-language: EN-US;">P2P</span></b><span abp="498" lang="EN-US" style="mso-ansi-language: EN-US;"> debt
management companies currently fall under the responsibility of the Office of
Fair Trading, where they are required to obtain consumer credit licenses.
However, the oversight for <b abp="499">P2P</b> will pass to the FCA from April 2014.
This is likely to result in more controls, higher costs and, consequently,
lower lending rates for savers.<o:p abp="500"></o:p></span></span></div>
<div abp="501">
</div>
<div abp="502" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="503" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="504"><span abp="505" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="506">
</div>
<div abp="507" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="508"><u abp="509"><span abp="510" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="511" style="font-family: Calibri;"><span abp="1184" style="color: #20124d;">Zopa (acronym for Zone of Possible
Agreement) Ltd.<o:p abp="1185"></o:p></span></span></span></u></b></div>
<div abp="513">
</div>
<div abp="514" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="515" style="font-family: Calibri;"><b abp="516"><span abp="517" lang="EN-US" style="mso-ansi-language: EN-US;">Zopa</span></b><span abp="518" lang="EN-US" style="mso-ansi-language: EN-US;"> was founded by former employees of the
internet bank Egg in 2004 and it began trading in 2005. <b abp="519">Zopa</b> soon became
the biggest intermediary for <b abp="520">P2P</b>, and it has changed its operating model
many times since 2005. It eliminated high risk and youth borrowers. It has
changed the programming used to match lenders and borrowers thereby preventing
savers gaming the system to control lender queues. And it now includes a fund,
called Safeguard, to compensate lenders for losses. The consequence is that <b abp="521">Zopa</b>
pays lenders less interest than previously. </span><i abp="522"><span abp="523" lang="EN-GB"><o:p abp="524"></o:p></span></i></span></div>
<div abp="525">
</div>
<div abp="526" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="527" style="font-family: Calibri;"><span abp="528" lang="EN-GB">The Safeguard (SG) fund of 1.8 million pounds, while small, would
seemingly cover 700 million in loans if <b abp="529">Zopa'</b>s current default rate of
0.25% is maintained. <b abp="530">Zopa</b> has lent 165 million this last year and 427
million since its founding in 2005. <b abp="531">Zopa</b> is not covered by the </span><span abp="532" lang="EN-US" style="mso-ansi-language: EN-US;">Financial Service Compensation
Scheme.</span></span></div>
<div abp="533">
</div>
<div abp="534" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="535" lang="EN-GB"><span abp="536" style="font-family: Calibri;">Any UK resident over the age of 18 can sign up on <b abp="537">Zopa</b>'s
website and offer as little as 10 pounds for a bit of a loan. Advertised
interest rates, net of fees, are 5% for savers, although this is above the
rates currently recommended as 'trackers' at its website:</span></span></div>
<div abp="538">
</div>
<div abp="539" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="540" lang="EN-GB"><span abp="541" style="font-family: Calibri;">For loans of 2 and 3 years, 4.0% APR</span></span></div>
<div abp="542">
</div>
<div abp="543" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="544" lang="EN-GB"><span abp="545" style="font-family: Calibri;">For loans of 4 and 5 years, 4.4% APR</span></span></div>
<div abp="546">
</div>
<div abp="547" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="548" style="font-family: Calibri;"><b abp="549"><span abp="550" lang="EN-GB">The procedure</span></b><span abp="551" lang="EN-GB">:</span></span></div>
<div abp="552">
</div>
<div abp="553" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="554" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="555" style="mso-list: Ignore;">·<span abp="556" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="557" dir="LTR"></span><span abp="558" style="font-family: Calibri;"><b abp="559"><span abp="560" lang="EN-GB">The
lender deposits funds with</span></b><span abp="561" lang="EN-GB"> <b abp="562">Zopa</b> and the
company spreads the investment in small bits between many lenders. The minimum
loan period is 2-3 years and the maximum from 4 to 5 years. </span></span></div>
<div abp="563">
</div>
<div abp="564" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="565" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="566" style="mso-list: Ignore;">·<span abp="567" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="568" dir="LTR"></span><span abp="569" style="font-family: Calibri;"><b abp="570"><span abp="571" lang="EN-GB">The
lender sets an interest rate that 'bids' for the loan</span></b><span abp="572" lang="EN-GB">, and his position in the queue for loans depends on a) the demand
from borrowers and b) the rate other lenders are willing to lend at. Interest
payments are made without any deduction for income tax. Alternately, the lender
may offer loans at the 'tracker rate' suggested by <b abp="573">Zopa</b>. Either way, the
rates lenders are willing to loan at are matched to borrowers who are willing
to pay (including an uplift for <b abp="574">Zopa's</b> margin).</span></span></div>
<div abp="575">
</div>
<div abp="576" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="577" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="578" style="mso-list: Ignore;">·<span abp="579" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="580" dir="LTR"></span><span abp="581" style="font-family: Calibri;"><b abp="582"><span abp="583" lang="EN-GB">The
borrower pays a fee to Zopa</span></b><span abp="584" lang="EN-GB">, and <b abp="585">Zopa </b>takes
1% of the annual interest rate to cover its costs. </span></span></div>
<div abp="586">
</div>
<div abp="587" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="588" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="589" style="mso-list: Ignore;">·<span abp="590" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="591" dir="LTR"></span><span abp="592" style="font-family: Calibri;"><b abp="593"><span abp="594" lang="EN-GB">The
lender receives payments monthly</span></b><span abp="595" lang="EN-GB"> and can elect to
reinvest this amount in new loans. If the lender wants to recover his money
before term, he may do so. The cost to the borrower is a 1% fee to <b abp="596">Zopa</b>
plus any additional credit that another <b abp="597">Zopa</b> lender might require to
take on the business. If the borrower is in arrears, the lender is not eligible
for RR.</span></span></div>
<div abp="598">
</div>
<div abp="599" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="600" lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="601" style="mso-list: Ignore;">·<span abp="602" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="603" dir="LTR"></span><span abp="604" style="font-family: Calibri;"><b abp="605"><span abp="606" lang="EN-GB">The
lender receives a spreadsheet</span></b><span abp="607" lang="EN-GB"> detailing the terms
of the loans and the profile of the borrowers.</span></span></div>
<div abp="608">
</div>
<div abp="609" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="610" lang="EN-GB"><span abp="611" style="font-family: Calibri;">At December 2012 <b abp="612">Zopa, </b>which is a private company, had a net
worth of 3.5 million pounds.</span></span></div>
<div abp="613">
</div>
<div abp="614" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span abp="615" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="616"><span abp="617" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="618">
</div>
<div abp="619" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<b abp="620"><u abp="621"><span abp="622" lang="EN-GB"><span abp="623" style="font-family: Calibri;"><span abp="1186" style="color: #20124d;">RateSetter Ltd<o:p abp="1187"></o:p></span></span></span></u></b></div>
<div abp="625">
</div>
<div abp="626" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="627" style="font-family: Calibri;"><b abp="628"><span abp="629" lang="EN-US" style="mso-ansi-language: EN-US;">RateSetter</span></b><span abp="630" lang="EN-US" style="mso-ansi-language: EN-US;"> was
launched in October 2010 "to make </span><span abp="631" lang="EN-GB"><a abp="632" href="http://www.ratesetter.com/peer_to_peer_lending.htm"><span abp="633" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="634" style="color: black;">peer-to-peer lending</span></span></a></span><span abp="635" lang="EN-US" style="mso-ansi-language: EN-US;"> simple and safe for everyone."
<o:p abp="636"></o:p></span></span></div>
<div abp="637">
</div>
<div abp="638" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="639" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="640"><span abp="641" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="643" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="644" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="645" style="font-family: Calibri;">Two of the founders have worked in banking and the third in a start-up. To
date <b abp="646">RateSetter</b> has loaned 141 million pounds, and the company is <b abp="647">Zopa's</b>
main competitor<o:p abp="648"></o:p></span></span></div>
<div abp="649">
</div>
<div abp="650" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="651" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="652"><span abp="653" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="655" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="656" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="657" style="font-family: Calibri;">The lending procedure is very similar to <b abp="658">Zopa </b>except that<b abp="659"> </b>the
sums loaned are not parceled out in such small tranches. But while <b abp="660">Zopa</b>
has a very active chat room, this is missing from <b abp="661">RateSetter</b>.<o:p abp="662"></o:p></span></span></div>
<div abp="663">
</div>
<div abp="664" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="665" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="666"><span abp="667" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="669" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="670" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="671" style="font-family: Calibri;">Latest matched interest rates are somewhat higher than <b abp="672">Zopa's</b>,
and they cover a longer span of time:<o:p abp="673"></o:p></span></span></div>
<div abp="674">
</div>
<div abp="675" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="676" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="677" style="font-family: Calibri;">1 month - 1.7%<o:p abp="678"></o:p></span></span></div>
<div abp="679">
</div>
<div abp="680" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="681" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="682" style="font-family: Calibri;">1 year - 2.9%<o:p abp="683"></o:p></span></span></div>
<div abp="684">
</div>
<div abp="685" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="686" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="687" style="font-family: Calibri;">3 years - 4.3%<o:p abp="688"></o:p></span></span></div>
<div abp="689">
</div>
<div abp="690" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="691" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="692" style="font-family: Calibri;">4-5 years - 5.7%<o:p abp="693"></o:p></span></span></div>
<div abp="694">
</div>
<div abp="695" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="696" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="697"><span abp="698" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="700" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="701" style="font-family: Calibri;"><b abp="702"><span abp="703" lang="EN-US" style="mso-ansi-language: EN-US;">Like Zopa, RateSetter</span></b><span abp="704" lang="EN-US" style="mso-ansi-language: EN-US;"> permits lenders to recoup their funds early, provided another lender is
willing to take on the loan.<o:p abp="705"></o:p></span></span></div>
<div abp="706">
</div>
<div abp="707" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="708" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="709"><span abp="710" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="712" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="713" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="714" style="font-family: Calibri;">And, also like <b abp="715">Zopa, RateSetter</b> has a 'Provision Fund' that
reimburses lenders for defaults. The Provision Fund is currently worth 2.4
million pounds and it is financed by borrowers.<o:p abp="716"></o:p></span></span></div>
<div abp="717">
</div>
<div abp="718" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="719" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="720"><span abp="721" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="722" style="text-align: justify;">
<span abp="724" style="font-family: Calibri;"><b abp="725"><span abp="726" lang="EN-US" style="mso-ansi-language: EN-US;">RateSetter</span></b><span abp="727" lang="EN-US" style="mso-ansi-language: EN-US;">
does not explain how it earns a commission. However, as the typical offer rates
for borrowing for 5 years are 2.7% above the 5-year rates received by lenders
and the difference for one month is 4.7% (annualised), <b abp="728">RateSetter</b> evidently
make a turn on the interest differential.<span abp="729" style="mso-spacerun: yes;">
</span><o:p abp="730"></o:p></span></span></div>
<div abp="731">
</div>
<div abp="732" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="733" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="734"><span abp="735" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="737" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="738" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="739" style="font-family: Calibri;">At March 2013, <b abp="740">RateSetter</b> parent company Retail Money Market Ltd.
had a net worth of 1.5 million pounds.</span></span></div>
<div abp="737" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="738" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="739" style="font-family: Calibri;"><o:p abp="741"></o:p></span></span> </div>
<div abp="742" style="text-align: center;">
</div>
<div abp="742" style="text-align: center;">
<strong abp="1188"><span abp="1189" style="color: #20124d;"><u abp="1190">Conclusion</u></span></strong></div>
<div abp="742" style="text-align: center;">
<strong><u><span style="color: #20124d;"></span></u></strong> </div>
<div abp="747">
</div>
<div abp="748" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="749" style="font-family: Calibri;"><b abp="750"><span abp="751" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1191" style="color: black;">P2P lending rates received by savers have been falling</span></span></b><span abp="752" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="1192" style="color: black;">.<span abp="1193" style="mso-spacerun: yes;">
</span><b abp="1194">RateSetter</b> interest rates for 1 year have</span> declined from 5% in
January 2012 to 2.9% now, while 5-year rates are down from 7.6% to 5.7%. In
part this reflects the fall in savings rates that followed the Funding for
Lending scheme launched by the Treasury. <o:p abp="755"></o:p></span></span></div>
<div abp="756">
</div>
<div abp="757" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="758" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="759"><span abp="760" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="762" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="763" style="font-family: Calibri;"><b abp="764"><span abp="765" lang="EN-US" style="mso-ansi-language: EN-US;">Lenders can still get better interest rates from</span></b><span abp="766" lang="EN-US" style="mso-ansi-language: EN-US;"> <b abp="767">P2P than the banks</b>:<o:p abp="768"></o:p></span></span></div>
<div abp="769">
<span abp="771" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="772"><span abp="773" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="774">
</div>
<table abp="775" border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 62.95pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody abp="776">
<tr abp="777" style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td abp="778" style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="779" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="780"><span abp="781" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="782" style="font-family: Calibri;">Interest rates for lenders/savers<o:p abp="783"></o:p></span></span></b></div>
</td>
<td abp="784" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="785" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="786"><span abp="787" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="788" style="font-family: Calibri;">Best bank<o:p abp="789"></o:p></span></span></b></div>
</td>
<td abp="790" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="791" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="792"><span abp="793" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="794" style="font-family: Calibri;">Zopa<o:p abp="795"></o:p></span></span></b></div>
</td>
<td abp="796" style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="797" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="798"><span abp="799" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="800" style="font-family: Calibri;">RateSetter<o:p abp="801"></o:p></span></span></b></div>
</td>
</tr>
<tr abp="802" style="mso-yfti-irow: 1;">
<td abp="803" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="804" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="805" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="806" style="font-family: Calibri;">1 month<o:p abp="807"></o:p></span></span></div>
</td>
<td abp="808" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="809" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="810" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="811" style="font-family: Calibri;">1.6%<o:p abp="812"></o:p></span></span></div>
</td>
<td abp="813" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="814" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="815" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="816" style="font-family: Calibri;">N/A<o:p abp="817"></o:p></span></span></div>
</td>
<td abp="818" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="819" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="820" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="821" style="font-family: Calibri;">1.7%<o:p abp="822"></o:p></span></span></div>
</td>
</tr>
<tr abp="823" style="mso-yfti-irow: 2;">
<td abp="824" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="825" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="826" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="827" style="font-family: Calibri;">1 year<o:p abp="828"></o:p></span></span></div>
</td>
<td abp="829" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="830" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="831" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="832" style="font-family: Calibri;">1.95%<o:p abp="833"></o:p></span></span></div>
</td>
<td abp="834" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="835" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="836" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="837" style="font-family: Calibri;">N/A<o:p abp="838"></o:p></span></span></div>
</td>
<td abp="839" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="840" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="841" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="842" style="font-family: Calibri;">2.9%<o:p abp="843"></o:p></span></span></div>
</td>
</tr>
<tr abp="844" style="mso-yfti-irow: 3;">
<td abp="845" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="846" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="847" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="848" style="font-family: Calibri;">3 years<o:p abp="849"></o:p></span></span></div>
</td>
<td abp="850" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="851" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="852" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="853" style="font-family: Calibri;">2.65%<o:p abp="854"></o:p></span></span></div>
</td>
<td abp="855" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="856" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="857" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="858" style="font-family: Calibri;">4.0%<o:p abp="859"></o:p></span></span></div>
</td>
<td abp="860" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="861" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="862" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="863" style="font-family: Calibri;">4.3%<o:p abp="864"></o:p></span></span></div>
</td>
</tr>
<tr abp="865" style="mso-yfti-irow: 4; mso-yfti-lastrow: yes;">
<td abp="866" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="867" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="868" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="869" style="font-family: Calibri;">5 years<o:p abp="870"></o:p></span></span></div>
</td>
<td abp="871" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="872" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="873" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="874" style="font-family: Calibri;">3.15%<o:p abp="875"></o:p></span></span></div>
</td>
<td abp="876" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="877" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="878" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="879" style="font-family: Calibri;">4.4%<o:p abp="880"></o:p></span></span></div>
</td>
<td abp="881" style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div abp="882" class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="883" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="884" style="font-family: Calibri;">5.7%<o:p abp="885"></o:p></span></span></div>
</td>
</tr>
</tbody></table>
<div abp="886">
<span abp="888" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="889"><span abp="890" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="891">
</div>
<div abp="892" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="893" style="font-family: Calibri;"><b abp="894"><span abp="895" lang="EN-US" style="mso-ansi-language: EN-US;">However, lenders would be wise to consider the risks associated with P2P
</span></b><span abp="896" lang="EN-US" style="mso-ansi-language: EN-US;">before lending
their money:<o:p abp="897"></o:p></span></span></div>
<div abp="898">
<span abp="900" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="901"><span abp="902" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="903">
</div>
<div abp="904" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="905" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="906" style="mso-list: Ignore;"><span abp="907" style="font-family: Calibri;">1.</span><span abp="908" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="909" dir="LTR"></span><span abp="910" style="font-family: Calibri;"><b abp="911"><span abp="912" lang="EN-US" style="mso-ansi-language: EN-US;">Savings deposited at banks are guaranteed</span></b><span abp="913" lang="EN-US" style="mso-ansi-language: EN-US;"> up to 85,000 pounds by the Financial
Service Compensation Scheme (FSCS). The FSCS does not guarantee any sum lent
via <b abp="914">P2P</b>.<o:p abp="915"></o:p></span></span></div>
<div abp="916">
</div>
<div abp="917" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="918" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="919" style="mso-list: Ignore;"><span abp="920" style="font-family: Calibri;">2.</span><span abp="921" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="922" dir="LTR"></span><span abp="923" style="font-family: Calibri;"><b abp="924"><span abp="925" lang="EN-US" style="mso-ansi-language: EN-US;">Although both Zopa and RateSetter have sinking
funds</span></b><span abp="926" lang="EN-US" style="mso-ansi-language: EN-US;"> to compensate
lenders for the default of borrowers, they have no statutory requirement to do
so. At any time they may reduce payments into these funds. And, if there is a
sudden increase in defaults, the sinking funds might prove to be inadequate. In
that event, the lender will suffer a capital loss.<o:p abp="927"></o:p></span></span></div>
<div abp="928">
</div>
<div abp="929" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="930" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="931" style="mso-list: Ignore;"><span abp="932" style="font-family: Calibri;">3.</span><span abp="933" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="934" dir="LTR"></span><span abp="935" style="font-family: Calibri;"><b abp="936"><span abp="937" lang="EN-US" style="mso-ansi-language: EN-US;">The FSCS guarantees savings deposits at banks</span></b><span abp="938" lang="EN-US" style="mso-ansi-language: EN-US;">. If the bank becomes insolvent, the
FSCS will pay the saver any sum up to 85,000 pounds. In practice, the
government has guaranteed all bank deposits, regardless of their amount (at
Northern Rock, Bradford and Bingley and RBS). However, if the <b abp="939">P2P</b>
intermediary fails, the lender is not backed up by the FSCS or the state.<o:p abp="940"></o:p></span></span></div>
<div abp="941">
</div>
<div abp="942" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="943" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="944" style="mso-list: Ignore;"><span abp="945" style="font-family: Calibri;">4.</span><span abp="946" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="947" dir="LTR"></span><span abp="948" style="font-family: Calibri;"><b abp="949"><span abp="950" lang="EN-US" style="mso-ansi-language: EN-US;">In the event that the P2P intermediary fails</span></b><span abp="951" lang="EN-US" style="mso-ansi-language: EN-US;">, the only recourse the lender has
to recover his money is to contact the borrower and, if necessary, take him to
court. Given the small individual amounts involved and the large number of
lenders for every borrower, any such failure would almost certainly result in a
total loss except for the small amounts currently available in the sinking
funds (3% of loans for <b abp="952">RateSetter</b>, less for <b abp="953">Zopa</b>).<o:p abp="954"></o:p></span></span></div>
<div abp="955">
</div>
<div abp="956" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 37.5pt; mso-add-space: auto; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="957" lang="EN-US" style="mso-ansi-language: EN-US; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: Calibri; mso-fareast-theme-font: minor-latin;"><span abp="958" style="mso-list: Ignore;"><span abp="959" style="font-family: Calibri;">5.</span><span abp="960" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="961" dir="LTR"></span><span abp="962" style="font-family: Calibri;"><b abp="963"><span abp="964" lang="EN-US" style="mso-ansi-language: EN-US;">The two largest intermediaries are very small
companies.</span></b><span abp="965" lang="EN-US" style="mso-ansi-language: EN-US;"> <b abp="966">Zopa</b>
has a net worth of 3.5 million pounds, <b abp="967">RateSetter</b> 1.5 million pounds.
Both are privately owned. While <b abp="968">Zopa</b> appears to be profitable, recent
funding from <b abp="969">RateSetter</b> shareholders suggest it is not. And <b abp="970">Zopa</b>
closed its US operation in 2008.<o:p abp="971"></o:p></span></span></div>
<div abp="972">
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-18104188660983703462013-11-29T15:24:00.000+00:002013-11-29T15:24:08.691+00:00<div abp="179">
</div>
<h3 abp="180" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="181" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="182" style="color: #20124d;">Executive Remuneration as an Investment
Criterion; M&C Saatchi<o:p abp="183"></o:p></span></span></h3>
<div abp="184">
</div>
<h4 abp="185" align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span abp="186" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="187" style="color: #660000;">And HICL Infrastructure Company Limited<o:p abp="188"></o:p></span></span></h4>
<div abp="189">
</div>
<div abp="190" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
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<span abp="191" style="font-family: Calibri;"><a abp="790" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaoB002htFtwwZHhMTCYuCZZ5-OqWt7DKPRubruRayVfc_YnafuNwWmDHuVq6kKCLfol0ORfAemwYkH4p7wFnou2fum1JvpU6ZS5uW0uQpaFgn8OzpRXn-qIpqT3PqckJ6fV7nmayvlrU/s1600/The_Subsidised_Mineowner+Trade+Union+Unity+Magazine+1925+wiki.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="791" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaoB002htFtwwZHhMTCYuCZZ5-OqWt7DKPRubruRayVfc_YnafuNwWmDHuVq6kKCLfol0ORfAemwYkH4p7wFnou2fum1JvpU6ZS5uW0uQpaFgn8OzpRXn-qIpqT3PqckJ6fV7nmayvlrU/s1600/The_Subsidised_Mineowner+Trade+Union+Unity+Magazine+1925+wiki.jpg" height="320" width="230" /></a></span></div>
<span abp="191" style="font-family: Calibri;"><span abp="214" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="215"></o:p></span></span><br />
<div abp="216">
</div>
<div abp="217" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="218" style="font-family: Calibri;"><i abp="219"><span abp="220" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">The Subsidised Mineowner</span></i><span abp="221" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">,
Trade Union Unity Magazine 1925, courtesy Wikipedia<o:p abp="222"></o:p></span></span></div>
<div abp="223">
</div>
<div abp="224" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="225" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p abp="226"><span abp="227" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="228" style="text-align: justify;">
<span abp="235" style="font-family: Calibri;"><b abp="236"><span abp="237" lang="EN-US" style="mso-ansi-language: EN-US;">The bosses of the FTSE 100 have seen their remuneration increase from 11
times median wages in 1980 to 116 times median wages in 2010. </span></b><span abp="238" lang="EN-US" style="mso-ansi-language: EN-US;">But, as Brian Bell and John Van
Reenen of the LSE's Centre for Economic Performance note (<i abp="239">Firms Performance
and Wages: Evidence from across the Corporate Hierarchy,</i> Discussion Paper
1088, revised May 2012), this is in line with the phenomenal increase in the
share of the UK's national income that goes to the top 1% of earners. Furthermore,
they estimate that corporate executives account for only 3% of the top 1% of
earners in the UK. Financial service executives with more than 40% dominate,
while lawyers, accountants and management consultants are all represented in
higher numbers than corporate executives are.<o:p abp="240"></o:p></span></span></div>
<div abp="241">
<span abp="243" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="244"><span abp="245" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="241">
<span abp="243" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="244"><span style="font-family: Calibri;"></span></o:p></span> </div>
<div abp="246">
</div>
<div abp="247" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="248" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="249" style="font-family: Calibri;">The question for shareholders is whether there is any relation between
executive remuneration and shareholder returns. Bell and Van Reeden come up
with some interesting facts based on an analysis of senior executives and
employees at 400 large publicly quoted UK companies between 2001 and 2010.</span></span></div>
<div abp="247" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="248" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="249" style="font-family: Calibri;"><o:p abp="250"></o:p></span></span> </div>
<div abp="251">
</div>
<div abp="252" class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="253" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="254" style="mso-list: Ignore;">·<span abp="255" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="256" dir="LTR"></span><span abp="257" style="font-family: Calibri;"><b abp="258"><span abp="259" lang="EN-US" style="mso-ansi-language: EN-US;">There is a positive, statistically significant
relationship between senior executive pay and shareholder returns</span></b><span abp="260" lang="EN-US" style="mso-ansi-language: EN-US;">. This is also true of lower level
management and 'workers', though the relationship declines to very small numbers
at the bottom of the corporate hierarchy.<o:p abp="261"></o:p></span></span></div>
<div abp="262">
</div>
<div abp="263" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="264" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="265" style="mso-list: Ignore;">·<span abp="266" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="267" dir="LTR"></span><span abp="268" style="font-family: Calibri;"><b abp="269"><span abp="270" lang="EN-US" style="mso-ansi-language: EN-US;">CEO remuneration is more sensitive to increases
in shareholder value than declines</span></b><span abp="271" lang="EN-US" style="mso-ansi-language: EN-US;">. Therefore, a 10% increase in shareholder returns leads to a 38%
increase, on average, in a CEO's cash bonus, while a 10% decline leads to only
a 7% average decline in a CEO's cash bonus. And the average cash bonus for a
CEO is 31% of his or her total remuneration. 35% of a CEO's remuneration is
derived from base salary and the remaining 34% comes from long-term incentive
plans.<o:p abp="272"></o:p></span></span></div>
<div abp="273">
</div>
<div abp="274" class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="275" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="276" style="mso-list: Ignore;">·<span abp="277" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="278" dir="LTR"></span><span abp="279" style="font-family: Calibri;"><b abp="280"><span abp="281" lang="EN-US" style="mso-ansi-language: EN-US;">The relationship</span></b><span abp="282" lang="EN-US" style="mso-ansi-language: EN-US;"> between executive remuneration and shareholder
performance is strongest where institutional shareholders have a big share in
the company.<o:p abp="283"></o:p></span></span></div>
<div abp="284">
</div>
<div abp="285" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span abp="286" lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span abp="287" style="mso-list: Ignore;">·<span abp="288" style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span abp="289" dir="LTR"></span><span abp="290" style="font-family: Calibri;"><b abp="291"><span abp="292" lang="EN-US" style="mso-ansi-language: EN-US;">They note that</span></b><span abp="293" lang="EN-US" style="mso-ansi-language: EN-US;"> </span><span abp="294" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">"Low ownership firms [where
institutional shareholders are weak] strongly reward positive returns with
higher pay but require no pay penalty for negative returns." </span></span></div>
<div abp="285" class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<span abp="290" style="font-family: Calibri;"><span abp="294" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"></span><span abp="295" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="296"></o:p></span></span> </div>
<div abp="297">
<span abp="304" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="305" style="font-family: Calibri;"></span></span></div>
<div abp="297" style="text-align: justify;">
<span abp="304" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="305" style="font-family: Calibri;">Bell and Van Reeden do not touch on the issue of criteria used by
remuneration committees to set executive pay. Companies, such as Vodafone, that
make large impairments for goodwill and intangibles (they often overpay for
acquisitions and other intangible assets) often exclude impairment charges from
their profit benchmark. In other companies, where outside shareholders are
weak, senior executives sometimes help themselves to what they want
irrespective of their company's performance.<o:p abp="306"></o:p></span></span></div>
<div abp="307">
<span abp="309" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="310"><span abp="311" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="312">
</div>
<div abp="313" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="314"><u abp="315"><span abp="316" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="317" style="font-family: Calibri;"><span abp="793" style="color: #20124d;">The case of M&C Saatchi<o:p abp="794"></o:p></span></span></span></u></b></div>
<div abp="319">
</div>
<div abp="320" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="321" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="322"><span abp="323" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="325" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="326" style="font-family: Calibri;"><b abp="327"><span abp="328" lang="EN-US" style="mso-ansi-language: EN-US;">After being ejected as Chairman of the advertising agency, Saatchi and
Saatchi</span></b><span abp="329" lang="EN-US" style="mso-ansi-language: EN-US;">, Maurice
Saatchi, his brother Charles and three other senior Saatchi executives founded
a new advertising agency <b abp="330">M&C Saatchi</b>. The company was listed on the
Alternative Investment Market and it has been a success. Maurice Saatchi left
to pursue his interest in contemporary art and the remaining four executives
control the company.</span></span></div>
<div abp="325" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="326" style="font-family: Calibri;"><span abp="329" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="331"></o:p></span></span> </div>
<div abp="332">
</div>
<div abp="337">
</div>
<div abp="338" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="339" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="340" style="font-family: Calibri;">For the outside shareholder <b abp="341">M&C Saatchi</b> has an unusually
problematic corporate structure. A significant rise in the company's share
price leads to both a sharp reduction in its accounting profits and a large
capital distribution to its four founder directors. And it is worrying that the
directors focus on the company's 'Headline results' that exclude some very
important accounting charges, including the perverse repercussions of its
corporate structure.<o:p abp="342"></o:p></span></span></div>
<div abp="343">
<span abp="345" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="346"><span abp="347" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="348">
</div>
<div abp="349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="350" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="351" style="font-family: Calibri;">In its 2012 Annual Report Charles Saatchi reports that 2012 had been the
best year ever for <b abp="352">M&C Saatchi</b>. Then on page 10 the CFO adds:</span></span></div>
<div abp="349" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="350" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="351" style="font-family: Calibri;"><o:p abp="353"></o:p></span></span> </div>
<div abp="354">
</div>
<div abp="355" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="356" style="font-family: Calibri;"><span abp="357" lang="EN-US" style="mso-ansi-language: EN-US;">"</span><b abp="358"><span abp="359" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;">Non-headline results</span></b><span abp="360" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><o:p abp="361"></o:p></span></span></div>
<div abp="362">
</div>
<div abp="363" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="364" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="365" style="font-family: Calibri;">Leaving our improved trading
performance aside, the reduction in profit before tax of 38% to 9,881k pounds
and basic earnings per share of 75% to 3.89p was in the most part caused by the
increase in our share price from 1.165 pounds to 1.805 pounds that caused a 6.9
million pound accounting charge for minority put options (2011: 2.0m pound
credit) and the 1.6 m pound write off of our Spanish associate."<o:p abp="366"></o:p></span></span></div>
<div abp="367">
<span abp="369" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="370"><span abp="371" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="372">
</div>
<div abp="373" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="374" style="font-family: Calibri;"><span abp="375" lang="EN-US" style="mso-ansi-language: EN-US;">This extraordinary state of affairs requires an explanation. <b abp="376">Saatchi'</b>s
'philosophy' begins with</span><span abp="377" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"> "A federation of entrepreneurs,
built through start-ups and owner managers." </span><b abp="378"><span abp="379" lang="EN-US" style="mso-ansi-language: EN-US;">Saatchi</span></b><span abp="380" lang="EN-US" style="mso-ansi-language: EN-US;"> puts this into financial practice in two ways:<o:p abp="381"></o:p></span></span></div>
<div abp="382">
<span abp="384" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="385"><span abp="386" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="387">
</div>
<div abp="388" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="389" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="390" style="font-family: Calibri;">1. <b abp="391">Saatchi</b> has minority shareholdings in 19 companies that own
put options on Saatchi shares. These put options become ever more valuable as
Saatchi's share price rises or less valuable as its share price falls. In 2012,
the share price rose by 55% and the charge against profits was 6.9 million
pounds. This was the main reason why earnings per share declined by 75% in
2012.</span></span></div>
<div abp="388" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="389" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="390" style="font-family: Calibri;"><o:p abp="392"></o:p></span></span> </div>
<div abp="393">
</div>
<div abp="399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="400" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="401" style="font-family: Calibri;">2. <b abp="402">Saatchi</b> awards its four founding directors ten percent of the
company's increase in market capitalisation in the year, subject to certain
conditions. At the beginning of 2013, this resulted in the four directors
receiving shares equivalent to 5.6% of the company's outstanding shares. </span></span></div>
<div abp="399" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="400" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="401" style="font-family: Calibri;"><o:p abp="403"></o:p></span></span> </div>
<div abp="404">
</div>
<div abp="410" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="411" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="412" style="font-family: Calibri;">As a result, the four founding directors were awarded a large bonus in a
year when earnings per share declined by 75%. There is no provision for a claw
back should <b abp="413">Saatchi'</b>s share price fall. <o:p abp="414"></o:p></span></span></div>
<div abp="415">
<span abp="417" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="418"><span abp="419" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="420">
</div>
<div abp="421" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="422" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="423" style="font-family: Calibri;">2013 is likely to be a similar, but even more extreme story. <b abp="424">Saatchi'</b>s
share price has risen by 84% since 1 January. This suggests that the charge against
profits for put options will be over 14 million pounds. Over the same period,
the company's market capitalisation has increased by about 100 million pounds,
suggesting a payout to the four founding directors of about 10 million pounds. In
2013, thanks to an incentive plan, the four directors paid about half the going
price for <b abp="425">Saatchi</b> shares. It is not clear whether there is any similar
plan in place for the bonus these directors are almost certain to receive in
2014.<o:p abp="426"></o:p></span></span></div>
<div abp="427">
<span abp="429" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="430"><span abp="431" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="432">
</div>
<div abp="433" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="434" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="435" style="font-family: Calibri;">In this scenario, <b abp="436">Saatchi</b> would most likely make a loss in 2013 while
at the same time rewarding the four founding directors with new shares to the
value of 10 million pounds.<o:p abp="437"></o:p></span></span></div>
<div abp="438">
<span abp="440" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="441"><span abp="442" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="443">
</div>
<div abp="444" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="445" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="446" style="font-family: Calibri;">The four founding directors currently own 27% of the company. The
largest institutional shareholder, Aviva, owns 10%. Institutional shareholders
are weak, and the company is run for the benefit of its owner managers. This is
not in the interests of outside shareholders.<o:p abp="447"></o:p></span></span></div>
<div abp="448">
</div>
<div abp="454" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="455" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="456" style="font-family: Calibri;">-----------------------------------------------------------------------------------------------<o:p abp="457"></o:p></span></span></div>
<div abp="458">
</div>
<div abp="459" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="460" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="461"><span abp="462" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="463">
</div>
<h3 abp="464" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="466" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="830" style="color: #660000;">HICL
Infrastructure Company Limited</span></span></h3>
<h3 abp="464" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="466" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="831" style="color: #660000;"><o:p abp="832"></o:p></span></span> </h3>
<div abp="469">
</div>
<div abp="795" class="separator" style="clear: both; text-align: center;">
<a abp="796" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiF7Qsz_cNwfAVQoTht9-lUopYPuWUK0urYQrzVdVI-f4EdueodOK2GhIFqJEZ3Io5iXEc-ioL8Hj-zIBWgO-AKW3NSDs9RIZWi2fhLe0LI339oYJ7LqW-13Zzn0BieNQbPRikJCdM9CfY/s1600/hicl_Kicking_Horse_Canyon735px_2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="797" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiF7Qsz_cNwfAVQoTht9-lUopYPuWUK0urYQrzVdVI-f4EdueodOK2GhIFqJEZ3Io5iXEc-ioL8Hj-zIBWgO-AKW3NSDs9RIZWi2fhLe0LI339oYJ7LqW-13Zzn0BieNQbPRikJCdM9CfY/s1600/hicl_Kicking_Horse_Canyon735px_2.jpg" height="103" width="320" /></a></div>
<div abp="470" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="471" lang="EN-US" style="mso-ansi-language: EN-US;"></span><span abp="476" style="font-family: Calibri;"><span abp="477" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="478" alt="hicl_Kicking_Horse_Canyon735px_2.jpg" id="Picture_x0020_1" o:spid="_x0000_i1027" style="height: 100.5pt; mso-wrap-style: square; visibility: visible; width: 310.5pt;" type="#_x0000_t75"><v:imagedata abp="479" o:title="hicl_Kicking_Horse_Canyon735px_2" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image002.jpg"></v:imagedata></v:shape></span><span abp="480" lang="EN-US" style="mso-ansi-language: EN-US;"></span></span><br /></div>
<div abp="483" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="484" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="485" style="font-family: Calibri;">Viaduct over Kicking Horse Canyon, courtesy HICL
website<o:p abp="486"></o:p></span></span></div>
<div abp="487">
</div>
<div abp="488" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="489" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="490"><span abp="491" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="493" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="494" style="font-family: Calibri;"><b abp="495"><span abp="496" lang="EN-US" style="mso-ansi-language: EN-US;">Most shares have risen sharply these past five years</span></b><span abp="497" lang="EN-US" style="mso-ansi-language: EN-US;"> and it is difficult to find
suitable companies at a price that allows for a margin of safety. At such
times, it is wise to take profits on investments where the price of a share is
well in excess of one's estimate of what it is worth.<span abp="498" style="mso-spacerun: yes;"> </span>The logical asset class to park the funds is
cash. However, with money market funds yielding virtually nothing and bonds
still expensive, one must look for better places to invest in for the medium
term.<o:p abp="499"></o:p></span></span></div>
<div abp="500">
<span abp="502" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="503"><span abp="504" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="505">
</div>
<div abp="506" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="507" style="font-family: Calibri;"><b abp="508"><span abp="509" lang="EN-US" style="mso-ansi-language: EN-US;">HICL was the first investment company listed on the LSE</span></b><span abp="510" lang="EN-US" style="mso-ansi-language: EN-US;"> to invest in infrastructure
projects. It is incorporated in Guernsey. The company was floated in 2006 and
it now has a market value of 1.55 billion pounds. <b abp="511">HICL</b> is 91% invested
in the UK in schools, hospitals, roads and public buildings. On average, its
contracts have a duration of 22 years and its income is largely indexed to
inflation. <b abp="512">HICL</b> is unaffected by changes in GDP, though it is not
entirely free of market sentiment. <span abp="513" style="mso-spacerun: yes;"> </span>Consequently,
its shares (in red) were, with the exception of a brief period in late 2008, a
safe haven from the consequences of the financial crisis. Its shares perform
more like investment grade corporate bonds than equities:<o:p abp="514"></o:p></span></span></div>
<div abp="515">
</div>
<div abp="516" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="517" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="518"><span abp="519" style="font-family: Calibri;"> </span></o:p></span><div abp="833" class="separator" style="clear: both; text-align: center;">
<span abp="519" style="font-family: Calibri;"><a abp="834" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgr6Fke2-OMULZ5sxUgW3BKOnj_w1IQlnOz-rwEMU6rj3fLYstU35kzeLsauKU6A3bTNsU0d_1B2rMFgCzrI3dorfTdS4bq_2Ny1X9T5oWM6CBA0WBnYV7moo_LO_GilC72qF7KD_3d_0/s1600/HICL+share+price+Vs+Ftse.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="835" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgr6Fke2-OMULZ5sxUgW3BKOnj_w1IQlnOz-rwEMU6rj3fLYstU35kzeLsauKU6A3bTNsU0d_1B2rMFgCzrI3dorfTdS4bq_2Ny1X9T5oWM6CBA0WBnYV7moo_LO_GilC72qF7KD_3d_0/s1600/HICL+share+price+Vs+Ftse.png" height="181" width="400" /></a></span></div>
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<div abp="520">
</div>
<div abp="529" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="530" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="531" style="font-family: Calibri;">HICL share price and shareholder return versus FTSE
250 and All Share, courtesy HICL website, click to enlarge<o:p abp="532"></o:p></span></span></div>
<div abp="533">
</div>
<div abp="534" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="535" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="536"><span abp="537" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="539" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="540" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="541" style="font-family: Calibri;">At the present price of 130p, the shares yield 5.4% and they are priced
at an estimated premium of 9% to net asset value. Demand for <b abp="542">HICL</b> shares
has maintained a share price premium to net asset value since 2009.<o:p abp="543"></o:p></span></span></div>
<div abp="544">
</div>
<div abp="545" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: center;">
<span abp="546" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="547"><span abp="548" style="font-family: Calibri;"> </span></o:p></span><div abp="898" class="separator" style="clear: both; text-align: center;">
<span abp="548" style="font-family: Calibri;"><a abp="899" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIx4SIYLnix_N__q-zquHiGEkArfxfddF8cTpzFH73WLDCZzz9w_6i3TMR5qv5WKfBaZcxxMxcFZ5LBqS93CZKOVINYFHAUUN0ZJr-u6iPA4CX6LjLbnEYgS-2I5f3IjysQgEIoUt_TYg/s1600/HICL+Share+premium.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img abp="900" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIx4SIYLnix_N__q-zquHiGEkArfxfddF8cTpzFH73WLDCZzz9w_6i3TMR5qv5WKfBaZcxxMxcFZ5LBqS93CZKOVINYFHAUUN0ZJr-u6iPA4CX6LjLbnEYgS-2I5f3IjysQgEIoUt_TYg/s1600/HICL+Share+premium.png" height="296" width="320" /></a></span></div>
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<div abp="549">
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<div abp="550" align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span abp="551" style="font-family: Calibri;"><span abp="552" style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape abp="553" alt="HICL Share premium.png" id="Picture_x0020_4" o:spid="_x0000_i1025" style="height: 209.25pt; mso-wrap-style: square; visibility: visible; width: 225.75pt;" type="#_x0000_t75">
<v:imagedata abp="554" o:title="HICL Share premium" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
</v:imagedata></v:shape></span></span><span abp="559" lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span abp="560" style="font-family: Calibri;">HICL share price premium to net asset value, courtesy
HICL website, click to enlarge<o:p abp="561"></o:p></span></span></div>
<div abp="562">
</div>
<div abp="567">
</div>
<div abp="568" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="569"><span abp="570" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="571" style="font-family: Calibri;"></span></span></b> </div>
<div abp="568" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="569"><span abp="570" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="571" style="font-family: Calibri;">The essence of HICL's business is:</span></span></b></div>
<div abp="568" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="569"><span abp="570" lang="EN-US" style="mso-ansi-language: EN-US;"></span></b> </div>
<div abp="568" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="569"><span abp="570" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="571" style="font-family: Calibri;"><o:p abp="572"></o:p></span></span></b> </div>
<div abp="573">
</div>
<div abp="578">
</div>
<div abp="579" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="580" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="581" style="font-family: Calibri;">1. To buy into completed PFI/PPP/P3 projects, currently 79. The company
avoids the risks of development and construction. It prefers to own 100% of the
project.</span></span></div>
<div abp="579" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="580" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="581" style="font-family: Calibri;"><o:p abp="582"></o:p></span></span> </div>
<div abp="583">
</div>
<div abp="584" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="585" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="586" style="font-family: Calibri;">2. <b abp="587">HICL</b> sets an internal rate of return (IRR) of 7% per annum for
each project and bids accordingly.</span></span></div>
<div abp="584" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="585" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="586" style="font-family: Calibri;"><o:p abp="588"></o:p></span></span> </div>
<div abp="589">
</div>
<div abp="590" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="591" style="font-family: Calibri;"><span abp="592" lang="EN-US" style="mso-ansi-language: EN-US;">3. Inflation protection. Currently, the company will see an increase of
0.6% in the gross valuation of its portfolio for every 1.0% increase in the UK
Retail Price Index (</span><span abp="593" lang="EN-GB">RPI</span><span abp="594" lang="EN-US" style="mso-ansi-language: EN-US;">).</span></span></div>
<div abp="590" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="591" style="font-family: Calibri;"><span abp="594" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="595"></o:p></span></span> </div>
<div abp="596">
</div>
<div abp="597" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="598" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="599" style="font-family: Calibri;">4. The company leverages its equity financing, currently by 1.23 times (1.23
pounds of debt for every pound of equity). The average cost of debt is
currently 5.7%. Nearly all borrowings are long term and project related.</span></span></div>
<div abp="597" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="598" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="599" style="font-family: Calibri;"><o:p abp="600"></o:p></span></span> </div>
<div abp="601">
</div>
<div abp="602" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="603" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="604" style="font-family: Calibri;">5. <span abp="605" style="mso-spacerun: yes;"> </span><b abp="606">HICL</b> issues new shares
when it has exhausted its existing resources and sees an opportunity for
further investments. When it does so, the share price premium falls for a short
time.<o:p abp="607"></o:p></span></span></div>
<div abp="608">
</div>
<div abp="608">
</div>
<div abp="609" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="610" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="611" style="font-family: Calibri;">6. <span abp="612" style="mso-spacerun: yes;"> </span><b abp="613">HICL</b> uses Infrared
Capital Partners to manage the estate. Their advisory fee in 2012 was 1.2% of
gross assets. Director fees are limited to 250,000 pounds per annum.<o:p abp="614"></o:p></span></span></div>
<div abp="615">
<span abp="617" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="618"><span abp="619" style="font-family: Calibri;"> </span></o:p></span></div>
<div abp="620">
</div>
<div abp="621" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="622"><span abp="623" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="624" style="font-family: Calibri;">The prudent investor will note:</span></span></b></div>
<div abp="621" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b abp="622"><span abp="623" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="624" style="font-family: Calibri;"><o:p abp="625"></o:p></span></span></b> </div>
<div abp="626">
</div>
<div abp="627" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="628" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="629"><span abp="630" style="font-family: Calibri;"> </span></o:p></span><span abp="633" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="634" style="font-family: Calibri;">1. HICL's continuity depends upon its ability to secure new projects at
its desired IRR. Of 15 bids it entered last year, it won just three.</span></span></div>
<div abp="627" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="633" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="634" style="font-family: Calibri;"><o:p abp="635"></o:p></span></span> </div>
<div abp="636">
</div>
<div abp="637" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="638" style="font-family: Calibri;"><span abp="639" lang="EN-US" style="mso-ansi-language: EN-US;">2. The company relies entirely on the public sector and a new,</span><span abp="640" lang="EN-GB"> Labour</span><span abp="641" lang="EN-US" style="mso-ansi-language: EN-US;">
government could change the terms of business. However, given that the Treasury
is trying to reduce the public deficit and</span><span abp="642" lang="EN-GB"> Labour's</span><span abp="643" lang="EN-US" style="mso-ansi-language: EN-US;"> mission is to increase capital
spending, a change of government might prove to be beneficial.</span></span></div>
<div abp="637" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="638" style="font-family: Calibri;"><span abp="643" lang="EN-US" style="mso-ansi-language: EN-US;"><o:p abp="644"></o:p></span></span> </div>
<div abp="645">
</div>
<div abp="646" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="647" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="648" style="font-family: Calibri;">3. If there is a prolonged period of RPI inflation below 2.75%, this
will adversely affect the value of HICL's estate. The RPI for the year to
October 2013 was 2.56%.</span></span></div>
<div abp="646" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="647" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="648" style="font-family: Calibri;"><o:p abp="649"></o:p></span></span> </div>
<div abp="650">
</div>
<div abp="651" class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span abp="652" lang="EN-US" style="mso-ansi-language: EN-US;"><span abp="653" style="font-family: Calibri;">4. An upsurge in bond yields would depress HICL's value to investors.<o:p abp="654"></o:p></span></span></div>
<div abp="655">
</div>
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0tag:blogger.com,1999:blog-6123577473607160262.post-89528799139582218902013-11-08T10:30:00.000+00:002013-11-08T10:30:38.284+00:00
<br />
<h3 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span lang="EN-GB"><span style="color: #20124d;">Why
investors should be worried about company pension schemes; and BT PLC<o:p></o:p></span></span></h3>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b><span style="font-family: Calibri;"><span style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shapetype coordsize="21600,21600" filled="f" id="_x0000_t75" o:preferrelative="t" o:spt="75" path="m@4@5l@4@11@9@11@9@5xe" stroked="f">
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<b><span style="font-family: Calibri;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzv2BZarjis0ad0Fay6AM3GyPHgJ_POFn7RX0JNR72CHhvJhythjTF6ZAxvI3g6LN8E9k9Trhrmmby3pRcch6j-Ss_FNGUTrhVVcmUSlOGoK_SU3kZv-nw0DGKCMDPF3yZbls8Z8M7i8A/s1600/220px-Chelsea+pensioner+William_Hiseland.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzv2BZarjis0ad0Fay6AM3GyPHgJ_POFn7RX0JNR72CHhvJhythjTF6ZAxvI3g6LN8E9k9Trhrmmby3pRcch6j-Ss_FNGUTrhVVcmUSlOGoK_SU3kZv-nw0DGKCMDPF3yZbls8Z8M7i8A/s1600/220px-Chelsea+pensioner+William_Hiseland.jpg" /></a></span></b></div>
<b><span style="font-family: Calibri;"><span lang="EN-GB"><o:p></o:p></span></span></b><br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span style="font-family: Calibri;"><i><span lang="EN-GB" style="font-size: 10pt; line-height: 115%;">William Hiseland</span></i><span lang="EN-GB" style="font-size: 10pt; line-height: 115%;">, an early Chelsea pensioner, by George Alsop @1720, courtesy
Wikipedia<o:p></o:p></span></span></div>
<b><span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span></b><br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">The first English pension scheme</span></b><span lang="EN-GB"> for soldiers,
who were wounded or who had completed 20 years of service, was founded by Charles
II in 1682. Over three hundred years later, the public sector defined benefit pension
scheme, which now includes civil servants, teachers and employees of the NHS as
well as the armed forces, is unfunded to the tune of 1.2 trillion pounds. This
is as big as the National Debt. But the British state will pay it off piecemeal
over decades, as it is here (so it is assumed) forever.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">Companies, which unlike government are assumed to have a finite
life, must fund their defined benefit pension schemes (DBPS).</span></b><span lang="EN-GB"> This has become a growing burden for many companies. In April 2012,
the profitable knitwear company <b>Dawson International</b> went into
administration.<b> </b>The CEO announced that it was closing because it could
not meet a 129-million pound demand for payment by its pension fund trustees, </span><span lang="EN-GB" style="font-size: 10pt; line-height: 115%;">". . . the deficits
have widened, mainly due to changes in actuarial assumptions, and associated
costs have risen significantly."</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Many companies have closed their <b>DBPS</b> to new entrants,
replacing them with defined contribution pension schemes (<b>DCPS</b>). As a <b>DCPS</b>
does not guarantee a future income, it does not require the provision for
future obligations that a <b>DBPC</b> requires.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">However, closing a <b>DBPS</b> to new entrants only reduces the
financial obligations for companies. So <b>W S Atkins</b>, which has closed its
<b>DPBS</b> to new entrants, is still grappling with its obligations. See <span style="mso-spacerun: yes;"> </span></span><a href="http://thejoyfulinvestor.blogspot.co.uk/2013_01_27_archive.html"><span style="color: blue; font-family: Calibri;">http://thejoyfulinvestor.blogspot.co.uk/2013_01_27_archive.html</span></a><span style="font-family: Calibri;">.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">BT warned, in its 2013 Annual Report</span></b><span lang="EN-GB"> </span><span lang="EN-GB" style="font-size: 10pt; line-height: 115%;">"We have a
significant funding obligation in relation to our defined benefit pension
schemes. Low investment returns, high inflation, longer life expectancy and
regulatory changes may result in the cost of funding BT’s main defined benefit
pension scheme, the BT Pension Scheme (BTPS), becoming a significant burden on
our financial resources."</span><span lang="EN-GB"> See more below.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">In its latest pensions report</span></b><span lang="EN-GB"> (</span><i><span lang="EN-US" style="mso-ansi-language: EN-US;">LCP Accounting for Pensions 2013</span></i><b><span lang="EN-US" style="mso-ansi-language: EN-US;">) </span></b><span lang="EN-GB">on the
FTSE 100 companies, the actuaries Lake Clark & Peacock LLP (LCP) look back
over 20 years. In 1994, all FTSE 100 companies had final salary <b>DBPS </b>open
to new members. Today only one, <b>Croda</b>, has such a scheme open to new
entrants. And 39 FTSE 100 companies have stopped accruing for present members,
meaning that their employees' pension rights are frozen. Even so, the 20%
excess of assets over liabilities that the companies recorded in 1994 has
fallen to a 9% shortfall at June 2013.</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Since 2002, FTSE 100 <b>DBPS</b> have been in deficit every quarter except
for a short period in 2007-8.</span></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIdozoZIisLsJCfPMPGtITCoKOwL1Oudx7C108d-shTiJD-nn49LPxERi0xr_9Y5660b4xqdwftJ7Jwe2QR0AWAFS82xQ5jj2MKLtG2-Tiv5aFBloSte-dLuEjAPwEeLhOfS03wYHM0dg/s1600/Pensions+report+1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="245" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIdozoZIisLsJCfPMPGtITCoKOwL1Oudx7C108d-shTiJD-nn49LPxERi0xr_9Y5660b4xqdwftJ7Jwe2QR0AWAFS82xQ5jj2MKLtG2-Tiv5aFBloSte-dLuEjAPwEeLhOfS03wYHM0dg/s400/Pensions+report+1.jpg" width="400" /></a></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape id="_x0000_i1030" style="height: 260.25pt; mso-wrap-style: square; visibility: visible; width: 425.25pt;" type="#_x0000_t75"><span style="font-family: Calibri;">
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<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Graph
courtesy Lane Clark & Peacock LLP, click to enlarge<o:p></o:p></span></span></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"></span><br /></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">And the situation is deteriorating.</span></b><span lang="EN-GB"> In the past year, <b>DBPS</b> net liabilities have increased by 1
billion pounds to 43 billion pounds even after companies had paid 21.9 billion
into their schemes. This is in spite of an 18% increase in the FTSE All Share
Index that boosted pension assets in this period. There are several reasons for
this deterioration:</span></span><span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">1. <b>Companies have had to take a more realistic view of the future
return of pension assets</b>. But estimates vary. <b>Resolution</b> now expects
a return on equities of 5% per annum. <b>Babcock</b> uses 8.4% per annum. </span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2. <b>Life expectancy is increasing.</b> LCP reckon that this has
cost 40 billion pounds to FTSE 100 companies since 2005. Assumptions vary by
company. So <b>Meggitt</b> uses 87.6 years and <b>Standard Life</b> 91 years as
a life expectancy for a 65 year-old man. The average life expectancy for a 65
year-old man has increased by three years in the last seven years:</span></span></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape id="_x0000_i1029" style="height: 178.5pt; mso-wrap-style: square; visibility: visible; width: 323.25pt;" type="#_x0000_t75"><span style="font-family: Calibri;">
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<span style="font-family: Calibri;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrLW_zbie-wOhBCePCiBP6LgbOuSNoFE2NP18Mulonw2BoVx3eZ0Pp19hRWqZ94zvnW_SzDKLQ_5tDjTxeuCZtTr8bJZ8hKUEf9GhQwOoMsqLozJCdNX0-pzhyphenhyphenNmitvOq55l6-hyuwAII/s1600/Pension+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhrLW_zbie-wOhBCePCiBP6LgbOuSNoFE2NP18Mulonw2BoVx3eZ0Pp19hRWqZ94zvnW_SzDKLQ_5tDjTxeuCZtTr8bJZ8hKUEf9GhQwOoMsqLozJCdNX0-pzhyphenhyphenNmitvOq55l6-hyuwAII/s400/Pension+2.jpg" width="400" /></a></span></div>
<br />
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Graph
courtesy Lane Clark & Peacock LLP, click to enlarge<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">3. <span style="mso-spacerun: yes;"> </span><b>The discount rate that
companies have used to discount future obligations is in decline</b>. This
should be based on "high quality" corporate bonds. <b>Experian</b>
now uses 5.2% (the highest). <b>British American Tobacco</b> 4.1% (the lowest).</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">4. <b>The regulatory burden</b> of running pension schemes has
increased six-fold since 1995, while the number of active members in a <b>DBPS</b>
has fallen by two-thirds:</span></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkrkwL1mqNa49FHxHd6CR_i5Se7DqwMHQcGTEFlGtShBsvaJ1bKZpxgaIWwLfWIbajQDbiPJKJSh4Pyhf6fOt_imnxNnA2kBKJE1rP4ympb2WpRmdUAgRr-AM6AXOmru3H78y2xfKdbbg/s1600/Pension+3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="262" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkrkwL1mqNa49FHxHd6CR_i5Se7DqwMHQcGTEFlGtShBsvaJ1bKZpxgaIWwLfWIbajQDbiPJKJSh4Pyhf6fOt_imnxNnA2kBKJE1rP4ympb2WpRmdUAgRr-AM6AXOmru3H78y2xfKdbbg/s400/Pension+3.jpg" width="400" /></a></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
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<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Graph
courtesy Lane Clark & Peacock LLP, click to enlarge<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><span lang="EN-GB">Pension
fund trustees now have great powers to protect their members, including in
takeover situations. "F</span><span lang="EN-US" style="font-size: 10pt; mso-ansi-language: EN-US; mso-bidi-font-family: Gotham-Book;">or example, WH Smith
– where the pension scheme trustees demanded that any buyer of the business
would need to make a large cash injection to the scheme." (LCP) <o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">Looking ahead</span></b><span lang="EN-GB">, there are more changes to
accounting standards and changes to pension law that will increase the burden
of <b>DBPS</b> to companies.</span></span></div>
<div class="MsoListParagraphCxSpFirst" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Calibri;"><b><span lang="EN-GB">Companies
were allowed to 'smooth' their asset values over a period of time</span></b><span lang="EN-GB">, which meant that they could overstate the actual value of their
pension fund assets. Not under the new version of IAS19. One such company is <b>Royal
Dutch Shell</b>. The adjustment to its 2012 accounts that it will have to take for
this measure in 2013 is estimated at $14 billion. Management will not include
this in the headline profit and loss account, although it will reduce the
company's equity by that amount. </span></span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Calibri;"><b><span lang="EN-GB">Under
the new version of IAS19</span></b><span lang="EN-GB">, companies will not be
able to use estimates for equity returns of 8.4%, as <b>Babcock</b> does. All
assets will be projected to increase by the yields available on corporate
bonds.</span></span></div>
<br />
<div class="MsoListParagraphCxSpMiddle" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Calibri;"><b><span lang="EN-GB"><span style="mso-spacerun: yes;"> </span>LCP estimates that the new version of IAS19</span></b><span lang="EN-GB"> will cost the FTSE 100 companies 2 billion pounds more every year.
Some companies, according to LCP, will benefit (<b>Aviva</b> will gain a small
profit) while <b>BP</b>, for example, will lose 500 million pounds. LCP
estimates that the year-end pre-tax balance sheet charge for the 100 companies
will be 20 billion pounds. <b>Royal Dutch Shell</b> accounts for 11.6 billion
pounds of this total.</span></span></div>
<br />
<div class="MsoListParagraphCxSpLast" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt 36pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18pt;">
<!--[if !supportLists]--><span lang="EN-GB" style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font-size-adjust: none; font-stretch: normal; font: 7pt/normal "Times New Roman";">
</span></span></span><!--[endif]--><span dir="LTR"></span><span style="font-family: Calibri;"><b><span lang="EN-GB">Companies
offering a pension scheme</span></b><span lang="EN-GB"> can opt out of the Second
State Pension, thereby paying less National Insurance. From 2016, the Second
State Pension ceases and companies will have to pay the full quota of National
Insurance.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">As a result, pension contributions for companies have almost doubled
in the past seven years, and their cost will continue to grow:</span></span></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
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<span style="font-family: Calibri;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiH-mtJQne56Eh9AQsxas9zP_9uuyazCmzABDdB8nDvEKkhk-b0mIVmy7NlsfAunqakvjhYYzsDStO7XkPyj-hahSF2o8dprVrc5hZYW-uOJd_lkfNA2w4jP8Je3KRB1Z03G439QFRm37U/s1600/Pension+4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="237" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiH-mtJQne56Eh9AQsxas9zP_9uuyazCmzABDdB8nDvEKkhk-b0mIVmy7NlsfAunqakvjhYYzsDStO7XkPyj-hahSF2o8dprVrc5hZYW-uOJd_lkfNA2w4jP8Je3KRB1Z03G439QFRm37U/s400/Pension+4.jpg" width="400" /></a></span></div>
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<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Graph
courtesy Lane Clark & Peacock LLP, click to enlarge<o:p></o:p></span></span></div>
<br />
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"></span><br /></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<b><span lang="EN-GB"><span style="font-family: Calibri;">Companies have found
many ways to limit the risks of DBPS.<o:p></o:p></span></span></b></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">1. Moving to DCPS and
freezing existing DBPS will, in the long run, eliminate the risk entirely. Many
companies have already done this and more are expected to follow.</span></span></div>
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span><br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2. Some have passed some
or all of the risks to insurance companies - this comes with a cost, but it
reduces risk. <b>BAE Systems</b> took out a longevity swap to limit the risk of
increasing life expectancy and so it has eliminated one variable from its <b>DBPS</b>.</span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">3. <b>Company guarantees
or pledged assets</b> can substitute cash payments. The risk is still there,
but the cost is postponed. <b>Centrica</b> pledged its Humber power station.</span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">4. Other companies have
agreed to pay more into the pension schemes if performance, an agreed level of
earnings before interest and tax (EBIT) for instance, is reached. Contributions
are then spread over bumper years. <b>ITV </b>will pay more when EBIT exceeds
10% of revenues.</span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">5. Companies have
partnership agreements with Trustees. Company assets are transferred into
jointly owned entities. <b>Diageo</b> transferred whisky stocks.</span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><span lang="EN-GB">The State Pension will
shortly be limited to a maximum flat rate of 7,500 pounds (at 2012 prices). The
Joseph Rowntree Foundation found that </span><span lang="EN-GB" style="font-size: 10pt; line-height: 115%;">"single people need to earn at least £16,850 a
year before tax in 2013 for a minimum acceptable living standard."</span><span lang="EN-GB"> And many retirees will have a partner with little or no pension
entitlement. Supplementary pensions are a very much-needed part of anyone's
retirement. Hence p<b>ensions autoenrolment, which commenced in October 2012</b>,
with a 3% payroll charge for the company. The effect on companies will vary
greatly, depending on the pension schemes they have in place. And the 3%
payroll charge may well increase. In Australia, they also started with 3%, but
found it inadequate. The rate there is set to rise from 9% to 12% by 2019. </span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: Calibri;"><span lang="EN-GB">The investor will separate defined contribution schemes, such as autoenrolment,
which are a known cost from the uncertainties of <b>DBPS</b>. </span><span lang="EN-US" style="mso-ansi-language: EN-US;"><strong>When reviewing a company, the cautious
investor will ask</strong>:<o:p></o:p></span></span></div>
<div style="text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">1. Does the company operate a
defined benefit pension scheme?</span></span></div>
<div style="text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;"><o:p></o:p></span></span> </div>
<div style="text-align: justify;">
</div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">2. Does it remain open to new
employees? Has the company stopped accruing for it, effectively freezing the
benefits for employees?<o:p></o:p></span></span></div>
<div style="text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">3. Is the scheme in surplus or
deficit? <o:p></o:p></span></span></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
</div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">4. If there is a <strong>DBPS</strong> deficit, do
the directors address its financing in their report and propose solutions? <o:p></o:p></span></span></div>
<div style="text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">5. Are the assumptions for inflation,
longevity, return on investment of the fund's assets and the discount rate to
calculate its liabilities reasonable? Has it applied the new version of IAS19?<o:p></o:p></span></span></div>
<div style="text-align: justify;">
</div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 10pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">6. Does the company have the
financial strength to comfortably pay off its future pension liabilities?<o:p></o:p></span></span></div>
<div style="text-align: center;">
----------------------------------------------</div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span lang="EN-GB"></span><br /></div>
<h3 align="center" class="MsoNormal" style="margin: 0cm 0cm 10pt; text-align: center;">
<span lang="EN-GB"><span style="color: #660000;">BT
PLC's Defined Benefit Pension Scheme<o:p></o:p></span></span></h3>
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLdak5aTG4j8TluyIFUvH8o7fpjYXmg5Y0nIrhdJbRtKG_cMs6uzOGMkshND65dECqMWLMBm0SiZ_H2EUux2CVxSg7g4OlwofNNhyphenhypheniKfAKmqfB15zIJpRg39vugfwf0c2KEyBxSgmYqw0/s1600/220px-Photograph_of_Women_Working_at_a_Bell_System_Telephone_Switchboard_(3660047829).jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLdak5aTG4j8TluyIFUvH8o7fpjYXmg5Y0nIrhdJbRtKG_cMs6uzOGMkshND65dECqMWLMBm0SiZ_H2EUux2CVxSg7g4OlwofNNhyphenhypheniKfAKmqfB15zIJpRg39vugfwf0c2KEyBxSgmYqw0/s1600/220px-Photograph_of_Women_Working_at_a_Bell_System_Telephone_Switchboard_(3660047829).jpg" /></a></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<b><span style="font-family: Calibri;"><span style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape alt="220px-Photograph_of_Women_Working_at_a_Bell_System_Telephone_Switchboard_(3660047829).jpg" id="Picture_x0020_1" o:spid="_x0000_i1026" style="height: 164.25pt; mso-wrap-style: square; visibility: visible; width: 201pt;" type="#_x0000_t75"><v:imagedata o:title="220px-Photograph_of_Women_Working_at_a_Bell_System_Telephone_Switchboard_(3660047829)" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image006.jpg"></v:imagedata></v:shape></span><span lang="EN-GB"></span></span></b><br /></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">International
switchboard 1940s, courtesy Wikipedia<o:p></o:p></span></span></div>
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><o:p><span style="font-family: Calibri;"> </span></o:p></span><br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">BT's management
acknowledge in its 2013 Annual Report</span></b><span lang="EN-GB"> that its defined
benefit pension scheme (DBPS) is </span><span lang="EN-GB" style="font-size: 10pt; line-height: 115%;">"becoming a significant burden on our financial
resources." </span><b><span lang="EN-GB">BT'</span></b><span lang="EN-GB">s DBPS
was closed to new entrants in 2001. Yet, with </span><span lang="EN-US" style="mso-ansi-language: EN-US;">44,000 contributing members, 193,000 pensioners
and 80,500 deferred members,</span><span lang="EN-GB"> it remains one of the
largest such schemes in the UK. The company has also changed the terms of its
active members, so that the retirement age was raised from 60 to 65 and the
pension is now based on career average earnings (adjusted for the CPI) instead
of final salary. Yet <b>BTs</b> pension deficit continues to grow. In large
part this is because <b>BT</b> has used more conservative assumptions to
calculate its <b>DBPS</b> assets and liabilities:</span></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 30pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<b><span lang="EN-GB"><span style="font-family: Calibri;">BT
DBPS assumptions<o:p></o:p></span></span></b></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2013</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2012</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2011</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2010</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2009</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 1;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Expected
return on assets per annum</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">5.05%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">5.4%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">6.35%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">6.5%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">6.7%</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 2;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Discount
rate per annum for liabilities</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">4.2%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">4.95%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">5.5%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">5.5%</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">6.85%</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 3;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">Increase in RPI per annum<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">3.3%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">3.05%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">3.4%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">3.6%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">2.9%<o:p></o:p></span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 4;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">Increase in CPI per annum<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">2.55%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">2.3%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">2.4%<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">n.a.<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="IT" style="mso-ansi-language: IT;"><span style="font-family: Calibri;">n.a.<o:p></o:p></span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">Life expectancy in years from age 60*<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">25.9 <o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">25.8<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">25.3<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">25.2<o:p></o:p></span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><span style="font-family: Calibri;">24.8<o:p></o:p></span></span></div>
</td>
</tr>
</tbody></table>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="font-size: 10pt; line-height: 115%; mso-ansi-language: EN-US;"><span style="font-family: Calibri;"><span style="mso-tab-count: 1;"> </span>*For
a 60 year-old 'male in a lower pay bracket'.<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-US" style="mso-ansi-language: EN-US;"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">The DBPS deficit is
very sensitive to these assumptions. </span></b><span lang="EN-GB">A 0.25%
increase in the discount rate reduces it by 1.7 billion pounds. A 0.25%
increase in the inflation rate increases the deficit by 1.5 billion pounds. And
a year's increase in life expectancy increases the deficit by 0.9 billion
pounds. BT does not provide any sensitivity analysis for a change in the
expected return on assets.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">In March 2012, BT and
the Trustees of the DBPS</span></b><span lang="EN-GB"> announced an agreement on
the triennial funding valuation as of June 2011. The substance of the agreement
was:</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">1. The <b>DBPS</b> deficit
was agreed, provisionally, to be 4.1 billion pounds at 30 June 2011.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">2. <b>BT </b>will make a
2 billion pound payment into the DBPS before March 2012.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">3. <b>BT</b> will make
nine deficit payments of 325 million pounds in each year from 2013 to 2021.
This is in addition to the regular payments <b>BT</b> makes to fund the scheme.
In 2013, this amounted to 217 million pounds.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">4. <b>BT</b> will make
matching payments into the DBPS if its shareholder distributions exceed
cumulative pension deficit contributions to June 2015. In 2013, <b>BT</b> made
shareholder distributions (dividends plus net share purchases) of 876 million
pounds. At this rate, the company will just about escape making matching
payments into its DBPS. </span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">5. If <b>BT</b>
generates more than 1 billion pounds from disposals less acquisitions in a
year, one-third of the net cash proceeds will be paid into the DBPS.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">6. <b>BT</b> will
consult the Trustees if it considers making acquisitions with a total cost
exceeding 1 billion pounds.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">7. Future creditors will
not be granted superior security to the <b>DBPS</b> in excess of a threshold of
1.5 billion pounds until the deficit declines to less than 2 billion pounds at
a subsequent funding valuation.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">8. There will be new funding
valuations at June 2014 and 2017.</span></span></div>
<br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">Although BT paid 2
billion pounds to reduce the deficit in the DBPS in 2012, by September 2013 the
pension scheme's deficit had climbed to 6.7 billion pounds.</span></b><span lang="EN-GB"> We are only 8 months away from another triennial valuation, and no
doubt this will require BT to make further substantial payments into its DBPS. </span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span style="font-family: Calibri;"><b><span lang="EN-GB">The strain of funding
the DBPS on BT's finances will eventually disappear</span></b><span lang="EN-GB">.
But this is still many years off:</span></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkumQ2LzRrO7c7ed_LZNX7HGDXNxobyJeO9eV67PWQul7a9-Nb7xWjro6SLqFGf5EjPrhisI0gs1luA4lxdDtB8iRqNk2Dht9s3MZV1H5IRHXrq0QS9lkBpIAoa5fu5wcSctGqwUPKfXE/s1600/BT+pension+plan+graph.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="227" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkumQ2LzRrO7c7ed_LZNX7HGDXNxobyJeO9eV67PWQul7a9-Nb7xWjro6SLqFGf5EjPrhisI0gs1luA4lxdDtB8iRqNk2Dht9s3MZV1H5IRHXrq0QS9lkBpIAoa5fu5wcSctGqwUPKfXE/s400/BT+pension+plan+graph.jpg" width="400" /></a></div>
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<div style="text-align: center;">
<span style="font-size: x-small;">Graph from BT 2013 Annual Report</span></div>
<div align="center" class="MsoNormal" style="margin: 0cm 0cm 0pt; text-align: center;">
<span style="mso-ansi-language: ES; mso-no-proof: yes;"><v:shape alt="BT pension plan graph.jpg" id="Picture_x0020_2" o:spid="_x0000_i1025" style="height: 200.25pt; mso-wrap-style: square; visibility: visible; width: 352.5pt;" type="#_x0000_t75"><span style="font-family: Calibri;">
<v:imagedata o:title="BT pension plan graph" src="file:///C:\Users\richard\AppData\Local\Temp\msohtmlclip1\01\clip_image007.jpg">
</v:imagedata></span></v:shape></span></div>
<b><span lang="EN-GB"><span style="font-family: Calibri;">Meanwhile, actuarial
losses in the DBPS have wrecked BT's balance sheet:<o:p></o:p></span></span></b><br />
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto 19.65pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Pounds
Mn</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Sept
2013</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">March
2012*</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">March
2011</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">March
2010</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">March
2009</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 1;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Net
Equity</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">(926)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">(262)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">1,308</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">1,925</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">(2,650)</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 2;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Net
debt</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">9,379</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">8,650</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">9,726</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">9,462</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">11,135</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 3; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<i><span lang="EN-GB"><span style="font-family: Calibri;">DBPS<span style="mso-spacerun: yes;"> </span>deficit<o:p></o:p></span></span></i></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<i><span lang="EN-GB"><span style="font-family: Calibri;">6,676<o:p></o:p></span></span></i></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<i><span lang="EN-GB"><span style="font-family: Calibri;">5,856<o:p></o:p></span></span></i></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<i><span lang="EN-GB"><span style="font-family: Calibri;">1,830<o:p></o:p></span></span></i></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<i><span lang="EN-GB"><span style="font-family: Calibri;">7,876<o:p></o:p></span></span></i></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; line-height: normal; margin: 0cm 0cm 0pt; text-align: justify;">
<i><span lang="EN-GB"><span style="font-family: Calibri;">3,973<o:p></o:p></span></span></i></div>
</td>
</tr>
</tbody></table>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;"><span style="mso-tab-count: 1;"> </span>*Restated<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span><span style="font-family: Calibri;"><b><span lang="EN-GB">There are no net
assets to back BT's debts</span></b><span lang="EN-GB">, which are currently 9.4
billion pounds. Fortunately, BT's net operating cash flow (after capital
expenditure) of 9.7 billion pounds for the last five years has covered dividend
payments by almost 3 times; the company slashed its dividend in 2009. But even
this favourable cash flow should be qualified. The company has partly financed
its activities by allowing the <b>DBPS</b> deficit to rise.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">The company has a
long-term credit rating from S & P of BBB (one notch above junk) and a
short-term credit rating of <span style="mso-spacerun: yes;"> </span>A-2. </span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Trading profits have
been swamped by actuarial variations (mainly negative) on its DBPS:</span></span></div>
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span><br />
<br />
<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: currentColor; margin: auto auto auto -1.7pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background-color: transparent; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 124.3pt;" width="166">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">Pounds Mn</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2014 1st half</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2013</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2012</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2011</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2010</span></span></div>
</td>
<td style="background-color: transparent; border-color: windowtext windowtext windowtext rgb(0, 0, 0); border-style: solid solid solid none; border-width: 1pt 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">4 1/2 years </span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 1;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 124.3pt;" width="166">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">Trading post tax profit</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">959</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2,091</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">2,003</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">1,504</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">1,029</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">7,586</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 2;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 124.3pt;" width="166">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">Net DBPS
(charge)/credit</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(476)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(2,950)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(2,144)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">3,575</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(5,178)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(7,173)</span></span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 3; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext; border-style: none solid solid; border-width: 0px 1pt 1pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 124.3pt;" width="166">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">Resulting
profit/(loss)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">483</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(859)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(141)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">5,075</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">(4,149)</span></span></div>
</td>
<td style="background-color: transparent; border-color: rgb(0, 0, 0) windowtext windowtext rgb(0, 0, 0); border-style: none solid solid none; border-width: 0px 1pt 1pt 0px; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt;" valign="top">
<div align="center" class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 0pt; text-align: center;">
<span lang="EN-GB"><span style="font-family: Calibri;">413</span></span></div>
</td>
</tr>
</tbody></table>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB" style="font-size: 10pt; line-height: 115%;"><span style="font-family: Calibri;">Note: Assumptions on expected asset returns etc. varied
considerably in past years (see above).<o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">Taking the last 4 1/2
years, BT has made a profit of 413 million pounds, once deducting the increase
in the <b>DBPS </b>deficit. Non-trading losses have a habit of catching up with
the cash flow of a company. The <b>DBPS</b> deficit certainly will. <b>Had BT
applied the revised IAS19 to its accounting for its DBPS in 2013</b>, the
company would have reported a 190-million pound reduction in pre-tax profits.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><span style="font-family: Calibri;">It is against this
background that an investor must weigh the risks associated with <b>BTs DBPS </b>against
its undoubted trading strengths. <span style="mso-spacerun: yes;"> </span>The
company is capitalised at 29 billion pounds and its shares are priced at 371p. At
this price, the shares yield 2.6% and are on a price earnings ratio of 14, if
one uses trading profits as the denominator rather than the non-existent
accounting profits.</span></span></div>
<br />
<div class="MsoNormal" style="-ms-text-justify: inter-ideograph; margin: 0cm 0cm 0pt; text-align: justify;">
<span lang="EN-GB"><o:p><span style="font-family: Calibri;"> </span></o:p></span></div>
<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<b><span lang="EN-GB" style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;"><span style="color: #4c1130;">Note: the next article
will appear on 29 November.<o:p></o:p></span></span></span></b></div>
</div>
</div>
</div>
The Joyful Investorhttp://www.blogger.com/profile/07639428026932659877noreply@blogger.com0