Terry Smith explains..........

[Pendrainllwyn]

In my experience Schindler make very good lifts so I had a quick look at Kone vs Schindler today. I should have done that before I bought Kone. Better late than never!

According to Morning Star (which is not always reliable), from 2009 through 2017 (I didn't look back further) Kone has earned a higher ROE and ROCE.
Kone has had an average ROE of 37.8% versus 26.2% at Schindler
Kone has had an average ROCE of 35.5% versus 21.5% at Schindler
Additionally, on those metrics, Kone outperformed Schindler each of the 9 years.

Despite that, Kone seems to trade with a consistently lower PE (currently 21.8 vs 26.5) and a higher dividend yield (4% vs 2%).
Kone is more expensive on a price to book basis (7.3 vs 6.9).
Happy to be corrected but I think Kone dividends are subject to 30% withholding and Schindler 35%.
All that doesn't mean that Kone is a better investment. Nevertheless I am happy with my choice.

On the market share front Kone claim to be #3 globally with a 19% market share with the following regional shares
#4 for equipment and maintenance in North America
#2 for equipment and #3 for maintenance in EMEA
#1 for equipment and maintenance in China
#1 for equipment and #2 for maintenance in the rest of APAC
I didn't look too hard but couldn't find similar data for Schindler.

Pendrainllwyn

[flyer61]

Useful stuff - thanks Pendrainllwyn.

Top ups this week, EL (after results), PEP (big dividend rise) , KHC (results OK...just) and PM along with an initial purchase of 3M. Will look again at KONE later in the year.

Reinvesting dividends and continuing my exit from high yield....selling down IPE

[Dod101]

Pendrainllwyn

Your stats are probably not far off otherwise I dare say that Fundsmith would have bought Schindler. Interesting though because I think some of the Schindler shortfall will be on translating foreign earnings into Swiss Francs rather than the Euro. I would have thought though that Schindler would have been the stronger in China than your stats indicate.

I am looking for a Swiss Franc earner. Maybe Nestle?

Dod

[LeMoss]

Pendrainllwyn

I am looking for a Swiss Franc earner. Maybe Nestle?

Dod

As someone with a substantial chunk in Nestle, just worth pointing out a couple of points :

- The Swiss Franc is the wrong reason to buy Nestle. 99% of Nestle's revenues are earned outside Switzerland. It just happens to be listed and quoted in Swiss Francs but the US dollar and Indian Rupee have a greater influence on it than CHF.

- Another thing to be cognisant of whilst buying Swiss companies for yield is the 35% withholding tax deducted at source on dividends. If you hold within an ISA this is for all practical purposes not recoverable despite the UK/Ch tax treaty which limits the rate to 15%. Outside of ISAs you have to go through a fairly painful process involving paperwork to claim the 20% back directly from the swiss authorities.

[richfool]

I am looking for a Swiss Franc earner. Maybe Nestle?

Dod, you could always buy a European IT like JETG or JETI (JP Morgan European Growth Pool and JP Morgan European Income Pool), which have about 10% -17% in Swiss stocks, including Nestle (JETG), Roche & Novartis. Not a huge amount in Swiss stocks, but it would avoid having to buy an overseas stock.

[ADrunkenMarcus]

On the market share front Kone claim to be #3 globally with a 19% market share with the following regional shares
#4 for equipment and maintenance in North America
#2 for equipment and #3 for maintenance in EMEA
#1 for equipment and maintenance in China
#1 for equipment and #2 for maintenance in the rest of APAC
I didn't look too hard but couldn't find similar data for Schindler.

I like their positions in China and APAC in particular. It bodes well for the future IMHO.

As an aside, in September 2013 Terry Smith spoke before the Institute of Directors about his period running the Tullet Liberty Pension Fund from 4 December 2003 to 31 December 2012 and gave the total return for the period both for the pension fund and the MSCI World Index.

We also have the annual total returns for Fundsmith (class T) from the annual letters to unitholders for 2013, 2014, 2015, 2016 and 2017. Therefore I ran a comparison index (starting at 100) between the Tullet Liberty Pension Fund from 2003-2012 and then the Fundsmith Fund for 2013-17 to get a combined performance of his funds vs. the MSCI World Index. The numbers are rounded as the letters for Fundsmith only give the annual performance to this degree: i.e. 28.2% in 2016. Nonetheless, after about 14 years we have Smith running two funds with a similar investment process and the results are as follows:



Best wishes

Mark.

[Walrus]

Pendrainllwyn

I am looking for a Swiss Franc earner. Maybe Nestle?

Dod

As someone with a substantial chunk in Nestle, just worth pointing out a couple of points :

- The Swiss Franc is the wrong reason to buy Nestle. 99% of Nestle's revenues are earned outside Switzerland. It just happens to be listed and quoted in Swiss Francs but the US dollar and Indian Rupee have a greater influence on it than CHF.

- Another thing to be cognisant of whilst buying Swiss companies for yield is the 35% withholding tax deducted at source on dividends. If you hold within an ISA this is for all practical purposes not recoverable despite the UK/Ch tax treaty which limits the rate to 15%. Outside of ISAs you have to go through a fairly painful process involving paperwork to claim the 20% back directly from the swiss authorities.

If you were to hold the US ADR as a UK citizen would that mean you would be subject to a 15 percent WHT do you know? I would like to hold Nestle but a 35 percent WHT that I can't get back is rather unpalatable

[Pendrainllwyn]

I took a look at Nestle today. A couple of things perhaps worth noting.

Firstly, Nestle own more than 129 million L'Oreal shares. If I understand the accounts correctly they are on the balance sheet at CHF 8.2BN but their market value (at EUR 199 per share) is EUR 25.8BN or CHF 30.9BN so their book value is understated by CHF 22.7BN which works out at CHF 7.42 per share against a market price of CHF 76.36 per share. Of course if they wanted to sell the whole position I would imagine they would have to sell at a discount but the balance sheet understates their value to Nestle shareholders materially.

Secondly, Third Point owned around 40 million Nestle shares as of June 25 2017 (a Sunday) when they published this "Nestle Investment Letter" which is a good read: https://www.thirdpointoffshore.com/portfolio-updates. Nestle closed at 85.65 on June 26 2017 and since then they have fallen 10.8%. I have no idea what Third Point's current position is but on the same link you can find shorter Nestle commentary in their 3rd and 4th QTR 2017 letters so presumably they held a position until at least the end of 2017. I mention because Third Point is run by Daniel Loeb who is a very successful activist investor and the letter clearly lays out their reasons for investing.

I don't own Nestle.

Pendrainllwyn

[LeMoss]

Pendrainllwyn

I am looking for a Swiss Franc earner. Maybe Nestle?

Dod

As someone with a substantial chunk in Nestle, just worth pointing out a couple of points :

- The Swiss Franc is the wrong reason to buy Nestle. 99% of Nestle's revenues are earned outside Switzerland. It just happens to be listed and quoted in Swiss Francs but the US dollar and Indian Rupee have a greater influence on it than CHF.

- Another thing to be cognisant of whilst buying Swiss companies for yield is the 35% withholding tax deducted at source on dividends. If you hold within an ISA this is for all practical purposes not recoverable despite the UK/Ch tax treaty which limits the rate to 15%. Outside of ISAs you have to go through a fairly painful process involving paperwork to claim the 20% back directly from the swiss authorities.

If you were to hold the US ADR as a UK citizen would that mean you would be subject to a 15 percent WHT do you know? I would like to hold Nestle but a 35 percent WHT that I can't get back is rather unpalatable

As far as I know non US residents cannot hold the US Nestle ADR directly. if you can then I think dividends are paid net of 15% by some but not all US brokers.

The process for a normal UK dealing account is that you get paid dividends net of 35% withholding tax and you recover the 20% via claiming it back via your tax return.

For ISA accounts there is no recovery.

For a SIPP you can in theory recover all 35% but the process is extremely painful since it needs a lot of paperwork and has to be done by involving your SIPP administrator as well as the Swiss tax authorities.

Nestle is now doing a significant amount of buybacks ( upto 2.5% over the last year alone) and they are a much more tax efficient form of shareholder return.

Personally I hold Nestle for the very long term and even net of the painful withholding tax, it provides a stable base in a portfolio, growing at 7-8% a year in all market conditions.

[TUK020]

Some swiss companies are also quoted on the Frankfurt S.E.in Euros - e.g. Novartis
No idea what this means in withholding taxes

[Lootman]

As far as I know non US residents cannot hold the US Nestle ADR directly. if you can then I think dividends are paid net of 15% by some but not all US brokers.

If your broker lets you trade US shares then you should be able to trade ADRs as well, since they trade exactly like other US shares. They are usually listed on AMEX rather than the NYSE but that is transparent to traders, as it would be if they traded on NASDAQ.

ADRs can be a convenient way to hold any non-UK share that has them, which means that all your foreign shareholdings can be in the same currency, timezone, jurisdiction etc.

[Walrus]

As far as I know non US residents cannot hold the US Nestle ADR directly. if you can then I think dividends are paid net of 15% by some but not all US brokers.

If your broker lets you trade US shares then you should be able to trade ADRs as well, since they trade exactly like other US shares. They are usually listed on AMEX rather than the NYSE but that is transparent to traders, as it would be if they traded on NASDAQ.

ADRs can be a convenient way to hold any non-UK share that has them, which means that all your foreign shareholdings can be in the same currency, timezone, jurisdiction etc.

Yes I can see the ADR are available to me on HL. If I read it correctly I think this does mean I can hold them and pay 15 percent WHT. I need to read up on the ADR, On the face of it, It seems to trade at the same USD equivalent price and have the same rights, you just get the dividend a month later whilst they sort out the WHT?

[Walrus]

As someone with a substantial chunk in Nestle, just worth pointing out a couple of points :

- The Swiss Franc is the wrong reason to buy Nestle. 99% of Nestle's revenues are earned outside Switzerland. It just happens to be listed and quoted in Swiss Francs but the US dollar and Indian Rupee have a greater influence on it than CHF.

- Another thing to be cognisant of whilst buying Swiss companies for yield is the 35% withholding tax deducted at source on dividends. If you hold within an ISA this is for all practical purposes not recoverable despite the UK/Ch tax treaty which limits the rate to 15%. Outside of ISAs you have to go through a fairly painful process involving paperwork to claim the 20% back directly from the swiss authorities.

If you were to hold the US ADR as a UK citizen would that mean you would be subject to a 15 percent WHT do you know? I would like to hold Nestle but a 35 percent WHT that I can't get back is rather unpalatable

As far as I know non US residents cannot hold the US Nestle ADR directly. if you can then I think dividends are paid net of 15% by some but not all US brokers.

The process for a normal UK dealing account is that you get paid dividends net of 35% withholding tax and you recover the 20% via claiming it back via your tax return.

For ISA accounts there is no recovery.

For a SIPP you can in theory recover all 35% but the process is extremely painful since it needs a lot of paperwork and has to be done by involving your SIPP administrator as well as the Swiss tax authorities.

Nestle is now doing a significant amount of buybacks ( upto 2.5% over the last year alone) and they are a much more tax efficient form of shareholder return.

Personally I hold Nestle for the very long term and even net of the painful withholding tax, it provides a stable base in a portfolio, growing at 7-8% a year in all market conditions.

Thankyou for this. It will be held in a SIPP and I know HL won't support getting back the WHT there. I'm going to look into the ADR as it is available to me seemingly. It will be a long term hold for me too, looks like an outstanding company at a decent price to me.

[ADrunkenMarcus]

Firstly, Nestle own more than 129 million L'Oreal shares. If I understand the accounts correctly they are on the balance sheet at CHF 8.2BN but their market value (at EUR 199 per share) is EUR 25.8BN or CHF 30.9BN so their book value is understated by CHF 22.7BN which works out at CHF 7.42 per share against a market price of CHF 76.36 per share. Of course if they wanted to sell the whole position I would imagine they would have to sell at a discount but the balance sheet understates their value to Nestle shareholders materially.

As it happens, Terry Smith nominated L'Oreal as a single company he might chose when asked at the 2018 Fundsmith AGM. Nestle owns a substantial proportion of the L'Oreal company, then. Two for the price of one?

I wonder if Lindt & Sprüngli is worth a closer look.

Best wishes

Mark.

[LeMoss]

Thankyou for this. It will be held in a SIPP and I know HL won't support getting back the WHT there. I'm going to look into the ADR as it is available to me seemingly. It will be a long term hold for me too, looks like an outstanding company at a decent price to me.

Good luck. I am pretty sure you will have to pay a full 35% on ADRs unless you are a US taxpayer since the tax deducted is dependent on the domicile of the holder.

In the material from DTCC ( who are the depository for Nestle ADRs) it is clearly specified that the 15% preferential witholding only applies to US holders of the ADR. Also, if this were not the case this would be a very easy for everyone to dodge the default swiss withholding tax by buying ADRs.

[Dod101]

I am looking for a Swiss Franc earner. Maybe Nestle?

Dod, you could always buy a European IT like JETG or JETI (JP Morgan European Growth Pool and JP Morgan European Income Pool), which have about 10% -17% in Swiss stocks, including Nestle (JETG), Roche & Novartis. Not a huge amount in Swiss stocks, but it would avoid having to buy an overseas stock.

I have been away for the weekend so have not responded but this seems a good idea. I will certainly look at it. Actually Nestle does not look that brilliant anyway, apart from the 'hidden value' in L'Oreal and I expect those who know about these things already have factored that in to the share price. Otherwise Unilever looks at least as good in the sector.

Dod

[monabri]

Here's an article from the DT (7 May) on Nestlé.

https://www.telegraph.co.uk/business/20 ... -alliance/

"Swiss food giant Nestlé is paying Starbucks $7.15bn (£5.28bn) in cash for the rights to sell its coffee beans directly to consumers through supermarkets and other food shops around the world."

and

"Nestlé is already big in coffee - it owns the Nescafe and Nespresso"

Nespresso ( "George Clooney") is already marketed as "aspirational" whilst Nescafé is more a run of the mill glugging coffee ( ) Why would Nestlé PAY to sell SBucks coffee?

Oh well, perhaps the economies of the countries that the coffee is sold in will benefit from tax returns... ....

[richfool]

Dod, (If it's not going off at a tangent, you might be interested in this item of news regarding Nestle:

Nestle has announced that it will pay Starbucks $7.1bn (£5.2bn) to sell the company's coffee products.

The Swiss giant, which boasts Nescafe and Nespresso amongst its brands, will have the right to market Starbucks' coffee in retail outlets outside the cafe chain.

That part of the business currently generates $2bn in annual sales.

The deal means Nespresso machine owners will be able to buy Starbucks coffee branded pods for use at home.

http://www.bbc.co.uk/news/business-44027773

Sorry about the repeat post, I am having trouble with my wi-fi connection and things are hanging and then I am losing contact.

[PinkDalek]

So, in a nutshell, Nestle, a world class company wants to sell what is probably the world's very worst coffee? Not a great idea to me, it seems.

I might agree on the former but others don't, what with $2bn in annual sales.

[Dod101]

Dod, (If it's not going off at a tangent, you might be interested in this item of news regarding Nestle:

Nestle has announced that it will pay Starbucks $7.1bn (£5.2bn) to sell the company's coffee products.

The Swiss giant, which boasts Nescafe and Nespresso amongst its brands, will have the right to market Starbucks' coffee in retail outlets outside the cafe chain.

That part of the business currently generates $2bn in annual sales.

The deal means Nespresso machine owners will be able to buy Starbucks coffee branded pods for use at home.

http://www.bbc.co.uk/news/business-44027773.

Thanks. I do not quite understand what they are trying to do and to be honest I have been looking at the Nestle numbers. I do not see them as a better bet than say Unilever which I hold quite a lot of so I think I will give Nestle a miss. The positive of course is its holding in L'Oreal which is held on its balance sheet at 10% of its market value. I expect that is factored in to the price though. Maybe take a look at one or two of the ITs you have mentioned.

Dod