No stamp of approval

Jersey likes to crow about the various companies based here, everything it seems from African mining to international arms traders. Here's one that many people have heard of, Stanley Gibbons.   But I'm guessing this wont make the headlines of the local commerce friendly media.

 

 

The board of directors are listed https://subscriptions.stanleygibbons.com/stanleygibbons/view/content/sg_page_whos_who You might recognise a few local names, a former chairman of the JFSC, and another former chairman of CI Traders. . It has been going 150 years, though was only brought to Jersey about 5 years ago as I recall.

Nothing dodgy there, surely a sound investment prospect?

So here's the annual report out today. Not good.

http://www.lse.co.uk/share-regulatory-news.asp?shareprice=SGI&ArticleCode=u1j69tl8&ArticleHeadline=Final_Results

Most of the directors listed on their web site stood down over the year it seems. Rats jumping the sinking ship is the metophor that springs to mind. Actually the company appears to me to have come within a day or so of being suspened from AIM for not producing the report on time. Here are a few snippets.

Litigation

Following its acquisition of Mallett plc in October 2014, the Company learned that government regulators in the United States were investigating transactions that had occurred since 1 January 2010 involving a former client of Mallett Inc., Mallett's New York-based subsidiary. The former client is not a related person or affiliate of the Group. This issue had not been disclosed to the Company by the directors of Mallett plc during the due diligence process prior to the acquisition.

Buy back

In fact, whilst the new management team has already acted swiftly to resolve the first two cash outflows detailed above, it is the last element which has both proved more complex to isolate and represents a more fundamental deterioration in the Groups core business. It is now clear that the non-cash sale/reinvestment profile of the Stanley Gibbons Investment division`s investment contracts, sold between 2005 and 2013, which also retained an element of contractual buy-back, also fuelled the worsening net debt position. The Group no longer offers investment plans with contractual buy back options of any kind .

 

 A number of the Groups previous investment contracts, Guaranteed Minimum Return Contract ("GMRC" and the Capital Protection Growth Plan ("CPGP") both were contracts that had an element of contractual buyback. The contractual buy backs within the CPGPs were at a level of the original purchase price and within the GMRCs were above the purchase price to include a finance charge. This finance charge is recognised in the profit and loss throughout the period of the contract. These contracts were sold between 2005 and 2013 and have resulted in a restatement of prior year earnings relating to open contracts as at April 2014, as described in note 31b).  The GMRC and CPGP contracts ceased to be sold in April 2011 and December 2013 respectively.

 

Revenue recognition

 The Board has revisited the accounting treatment previously adopted in connection with certain transactions and has concluded that it was not in accordance with the applicable accounting standards. Accordingly the Board has decided to adopt some, significantly changed, accounting policies in the presentation of the accounts. These have resulted in a restatement of prior years' results and a substantial write-down of balance sheet assets. These changes stem largely from fundamental errors in the accounting treatment previously adopted, most notably of investment product "sales" recognised in previous years. 

 

Comments from the  auditors 

 Matters on which we are required to report by exception

In respect solely of the limitation on our work relating to the matters identified above in the Basis of Qualified opinion paragraph:

    we have not received all the information and explanations we require for our audit; and

   we were unable to determine whether proper accounting records have been kept.

We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

    proper returns adequate for our audit have not been received from branches not visited by us; and

   the financial statements are not in agreement with the accounting records and returns.

You dont have to take no as an answer from bureaucracy

A little over a year ago the Jersey Climate Action Network started a small campaign to push the States into divesting from fossil fuel investments.  The price of oil has halved in that time, and many of the associated exploration and production and integrated major companies have fared just as badly.  As far as I can tell, the States never acted on our recommendation to divest, so I tried to get a bit on information to identify what they were invested in.  Since oil and gas producers make a large part by capitalisation of the FTSE 100 and they are big dividend payers it is a fair guess they make a notable part of the portfolio.

This resulted in a FoI request, whose response in part I challenged, with an interesting outcome.  Since my original questions are repeated in the initial response, I'll skip that.

I cannot say I was overly surprised by the response in most respects.  However it raises some questions.  How can the States make statement of the ethical quality of its investments unless it goes into detail of what those investments are in?  And if it does go into that sort of detail, it ought really to be able to give a recent estimate of the amount in fossil fuels, nuclear etc?  Who is on the TAP, how frequently do investment managers present to them, and who sets the ethical criteria?  Is there any public or elected representation?  When was the last time a States members, or PAC or anybody reviewed the ethical criteria?

The one aspect I felt was unsatisfactory was the response about the report.   So I challenged it.

The proper response to a challenge (other than to plead mea culpa and release the info!) is an internal review.

And yes I did get a copy of the report, though it gave no particularly revealing insights relating to the actual ethics of investment policy.

The response tries to argue that everything was right, but clearly it was not.  The initial response was that reports are only shown to addressees, the review does not elaborate or provide a FOI complaint response for withholding the report, not does it refute my contention the report is covered by FoI.  I didn't think there was anything to be gained by pursuing this further - the information I wanted insofar as it existed was forthcoming.  But it might stand as a useful precedent in future should anyone try to gain access to a report denied on the grounds that we on only show them to addressees.

One other pont worth making here; just because a decision is made on ethical grounds doesn't make it a poor financial decision.  Indeed as in this case had the Island puled its fossil fuels investments a year ago as called for, we might now have who knows how many more millions in the Island's funds.