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Why Value Investing? Or ‘Why not follow the rest of the herd off the cliff?’

15 Mar

Investors, like cows, sheep, zebra and other herding animals, like to do what they see everybody else doing. If the rest of the herd jumps off a cliff, many other investors will follow the herd even if they suspect a hard landing awaits. Because if everyone else is doing it, it must be the right thing to do.

A prime example of this tendency is the recent Snapchat IPO, which we’re sure you’ve heard about but we’ll revisit for illustrative purposes. Despite having access to detailed information about the company’s fundamentals and history – it has never before made a profit – investors piled in when open trading began, leading the share price to rise 44%, from an initial $17 to $24.48. The opening price of $17 was itself above the range predicted by analysts.

There are no words for what Snapchat the company represents. Literally. It cannot even categorise itself correctly. In its IPO prospectus it described itself as a ‘camera company’, which as it has never to public knowledge made and sold a camera is not strictly accurate.

Go in the Other Direction

Value investing defies this ‘herding behaviour’ by taking a contrarian bet on the stock the market undervalues. Value investors look for assets, particularly shares, whose low market price belies the underlying fundamentals. They take a 3-5 year view on the company based on factors like the general outlook for the sector, the company’s debt to equity ratio, sales and revenue history, and sales and revenue projections.

They might dig deeper, and look at how secure a hold the company has over its primary assets – for example, whether they are overhung by a fixed or floating charge. A fixed charge means the item in question is clearly put up as collateral to a single defined investor, whereas with a floating charge the hierarchy of entitlement is less clearly defined.

All of these contrarian bets will be placed within a portfolio which is risk-optimised for the desired minimum return. When we say ‘risk-optimised’, essentially we are treating risk, or volatility, as a tradable item which though we cannot exactly quantify it, we are counting on its yielding us a premium in the long-term. We like risk, when we think we can control it.

Portfolio investors will almost always diversify this risk across several sectors or regions, analysing groups of stocks or indices to see their level of correlation, and choosing those which have historically not been highly correlated. For example, automobile sales and hotel visits might be correlated, if inversely, with the price of oil, or petrol; cheap fuel encourages more travel.

Two sectors which are less likely to be correlated are consumer durables – ie. fridges, microwaves, toasters – and food and toiletries. People will always need to buy groceries, but deciding whether to buy a new microwave or pair of Jimmy Choos is a discretionary choice and likely to bear little relation to how many ready meals they choose to buy.

 

 

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Why Recycling is the new Moisturising.

19 Oct

Of all the business workings you must archive and report, ‘waste’ is probably the least appetising. Trying to tot up the margin of product that fell off the production line, the bits you’d like to pick back up off the scrapheap… it’s not an auditor’s most exciting way to spend a day.

 

There are a number of different regulations in the UK currently, which as many are derived from EU guidelines might change over the course of the Brexit negotiations. They govern aspects as diverse as a ‘tax’ on packaging for prolific producers of paper, polyethene and cardboard hybrid coffee cups, glass, etc. And punitive fines and even jail-time for companies which engage in unlicensed disposal of ‘controlled waste’.

Wrapping-paper Tax

Any UK-listed or operating producer which emits more than 50 tonnes of packaging a year, and which has a turnover of over £2million, is obligated to submit a Packaging Tax Return to HMRC. They then have to offset their obligation by funding a commensurate amount to the government’s packaging recycling programme.

The private sector too has cashed in on the packaging sector, with a wealth of innovative initiatives to minimise waste. Probably the greatest expansion has been in devices to prevent food wastage, from the now fairly commonplace ethylene absorbers to special types of bacteria-fighting film. Ethylene is a hormone produced by metabolism in most fruit.  It initiates and accelerates the ripening of fruit and causes vegetables to start decomposing. Several companies now provide packaging with ethylene absorbers to increase produce shelf life.

Still more exciting are some of the patented inventions now seeking corporate sponsorship. For example, the wrappers with built-in anti-microbial properties recently developed by the Fraunhofer Institute for Process Engineering and Packaging IVV in Freising. Sorbic acid is the active component of the bacteria-fighting film; which in clinical trials reduced the size of an E.coli colony cultivated on day-old pork loin for the experiment to around a quarter of its initial size. Crucially, in the concentration of the laquer applied to the film, sorbic acid is neither poisonous nor allergenic and virtually odourless and tasteless.

http://reid.wrap.org.uk/item.php?id=26  )

Dodge the Plastic Bag Tax

The resource-efficiency bar has been raised still higher in the compostable plastic department, where a number of global competitors jostle for supremacy. In the UK there are several competing providers of biodegradable plastics, including Scotland-based BioBags, and Biopac, the self-described ‘leading developer’ of a very wide range of eco-friendly food packaging and catering disposables.

In Australia, where ‘sustainability’ is a buzzword even for the big mining companies, one player dominates the market. Publicly listed ‘Secos’ was formed in a reverse merger of Cardia Bioplastics Ltd with Stellar Films Group Pty. Ltd. In April 2015. Post-merger, its preliminary annual report for December 2015 showed total assets including cash, trade and other receivables and prepayments, was $9,076,829. The most recent figures available from investment.com.au show that the Australian stock market looks favourably on its prospects, as its P/B (price-to-book) ratio is 2.33, compared to 1.43 the market benchmark, and 1.54 for the sector.

UK-based Biopac’s impressive range of products enable catering and hospitality companies to proudly declare their green credentials; not only can they cite their sustainable container purchases on their annual reports, it is also often branded on the product itself. There is the ‘I am not a plastic cup’ made from renewable cornstarch that also carries the government approved CE marking (£130 for a case of 2100).   And the 12oz single use* ‘I’m a Green Cup,’ made from certified FSC (Forest Stewardship Council) board with a starch material, which is actually 100% compostable (£57.45 for a case of 1000). Various PLA (polylactic acid) clear tumblers …

If you needed further proof that this was a growth trend that has become impossible to ignore, there’s even a site called ‘Biodegradable Plastic Glasses’ (insert domain name here).

Or, if you prefer a more official stamp of approval, a market research report by Markets and Markets entitledBiodegradable Plastics Market by Type (PLA, PHA, PBS, Starch-Based Plastics, Regenerated Cellulose, PCL), by Application (Packaging, Fibers, Agriculture, Injection Molding, and Others) – Global Trends & Forecasts to 2020  states that the biodegradable plastics market is projected to grow from more than USD 2.0 Billion in 2015 to USD 3.4 Billion by 2020, at a CAGR of 10.8% between 2015 and 2020.

That’s a nice return on your investment.

 

plasticbags

 

Bizarre Flavour Combos the US is lauding as Future Food Trends

25 Mar

It’s a universally accepted fact that they do things bigger in the United States. Bigger, more outlandish, and sometimes just plain weird. Capitalism has begot an endless range of choices for consumers, which veer occasionally into the territory of ‘But why?’

It might be instructive – or just fun – for UK food aficionados and catering professionals to take a look at some of the trends emerging from across the pond. A number of the latest food trend predictions from the Winter Fancy Food Show, which took place in San Francisco in January, seem likely to diffuse into British kitchens. Others – see the ‘Tamarind Almond Crunch’ brussel sprout crisps, might not be so translatable …

Chocolate chip kale chips. This has to be seen to be believed.

Chocolate chip kale chips. This has to be seen to be believed.

A panel of food trade experts from the Specialty Food Association picked their top five new trends to watch out for. Let’s try and work out which ones are likely to take:

  1. Everyone’s talking Turmeric.

A number of companies have elected to add this Indian spice to add an exotic zing to everyday staples. Bruce Cost’s range of ginger ales has gained a passion fruit and turmeric flavour; and Navitas Naturals is “Taking snacks to the next level” with its Turmeric Tamari Almonds. Ginger provides a complimentary note too at Rishi Tea, which has added a Turmeric Ginger variety. And finally, HealthVerve has added Turmeric Rice to its microwavable meal range.

As well as packing a taste punch, the spice has some health benefits – its principal active ingredient, curcumin, has powerful anti-inflammatory effects and is a very strong antioxidant. However, the curcumin content of turmeric is only around 3% by weight, so you would have to consume a lot of turmeric to feel the effect. Fortunately, you now have plenty of turmeric-flavoured options…

  1. You can never have too much… cabbage!

Or, to be specific, vegetables of the cruciferous nature – those of the cabbage family. While kale-based snacks are still going strong, companies like Alive & Radiant are branching out into new variety Argula Cabbage Veggie Krunch. Kale fans be reassured that its extensive range of ‘Cheezy’ kale crisps is a long way from retirement.

Novel varieties of veggie crisps are clearly in vogue. I mean, why limit yourself to potato chips? Creative Snacks has released new Broccoli Chips, while rival Wonderfully Raw Gourmet has added a Tamarind Almond Crunch variation to its Brussel Bytes range (brussel sprout crisps, for those who don’t speak gourmet food critic.)

And finally, Korean food goes mainstream with Genuine Grub’s ‘Spicy Pickled Cabbage’, which it claims is naturally fermented and hence full of friendly bacteria.

  1. If in doubt, add cheese.

Some imaginative culinary designer has come up with a new flavour to add to olive oil: ‘manchego-style cheese’, latest offering from Silva Regal Spanish Food. Yancey’s Fancy has done one better and added cheese to cheese, with its ‘Grilled Bacon Cheeseburger’ flavoured ‘artisan’ cheese. The Sonoma Creamery has jumped aboard the quinoa trend with various combinations of parmesan-flavoured snacks.

Best of all, Boomchickapop has merged caramel and cheddar flavoured popcorn in a single bag. ‘Oh yes we did.’ And boy, are we glad you did. We can’t wait till this one hits UK retailers.

  1. Breakfast with every meal

It is widely acknowledged to be the most important meal of the day, so why not make every meal taste like breakfast? Admittedly, ‘spicy coffee’ beef jerky might be an innovation too far. But Cinnamon Toast HiCaf Tea we can definitely see. And putting strawberry and waffle pieces in chocolate is a stroke of genius. Dang Foods’ ‘Savory Bacon Coconut Chips’, though, are bound to be divisive. Sounds like one of Heston Blumenthal’s ideas. Actually, it could take off…

Could New Lynx Aftershave Help Bring About World Peace?

21 Sep

PEACE NOT WAR

Lynx sheds its chauvinistic image and celebration of all things machismo, to focus on creating peace in areas where violence and social exclusion is endemic.

The brand encouraged followers to put forward activities where they had embraced the ethos of ‘Peace Not War’ in their own lives, and post them on Instagram.

To launch the competition it sent war photographer Matthew Lloyd across the country to photograph local heroes teaching fractured communities to channel their frustrations into recreational pastimes, ranging from boxing to gardening.

In Tottenham, with a reputation for the enthusiasm of its inhabitants to break into impromptu fist-fights, usually outside nightclubs, many young people have found an oasis of calm in Harmony Gardens at Broadwater Farm. Head gardener Robbie Samuda was photographed with some of his charges. The Farm aims to give young people on probation and the long-term unemployed horticultural experience, and to bring peace to the local community.

On an estate in Ballymun, Dublin, another area no stranger to sectarianism, Dean Scurry is another local hero captured for posterity. He founded an independent hip hop label, Workin’ Class Records, providing young people with both a creative outlet and a means to financial self-improvement. Sometimes the only encouragement necessary is opportunity.

Matthew Lloyd enthused about the potential for outlets like photography to help young people funnel their passions into something positive: “With apps like Instagram, everyone can explore a budding passion for photography and spread visual positivity to family and friends.”

The most overtly unifying measure is that of the Cross-Border Orchestra of Ireland, where young people, whether from Catholic or Protestant, Loyalist or Unionist backgrounds, come together to create musical harmony. They spread their socially cohesive ethos through concert tours in countries across the world.

Lloyd professed himself “delighted to be part of such a powerful campaign, not only are we raising awareness for Peace One Day but we are also championing heroes who are doing good for their community via this collection of images.”

The brand has also produced an exclusive track in collaboration with Naughty Boy, Professor Green, Wilkinson and Naughty Boy’s latest protégée, 21 year old Bristol singer-songwriter Ava Lily: the ‘Lynx Peace Edition’ of his recent track, ‘Pardon Me’.

This initiative is linked to its new Fragrance, ‘Lynx Peace’, which is vaunted under the tagline, “Imagine a world with no war – where love and attraction rule supreme. Where guys and girls down their arms, only to fall into each other’s…So don’t fight – find Lynx Peace.”

But this is more than just a publicity stunt. Lynx has truly put its money where its corporate mouthpiece is, and has made a major donation to the charity ‘Peace One Day’. The NGO works to promote a global ceasefire in conflict regions, for one day a year so that UN agencies can engage in vital humanitarian work. Lynx’s year-long peace process was timed to culminate this Sunday 21st September in 2014 ‘World Peace Day’.

World Peace Day events are taking place in regions across the globe, with the highlight being a performance by artist Akon in the DRC’s Goma International Airport. Lexxus Legal played the UK event at 12pm BST, and other performances were scheduled for New York, LA, Delhi and Sydney. The intention is to raise awareness of areas of conflict and bring unity to fragmented populations. This can be either a ceasefire on a national level, or something on a very intimate personal scale. The question its advocates – including actors Jude Law and Jeremy Gilley – are asking is “#Who will you make peace with?”

The focus for this year’s peace campaign, say the Peace One Day organisers, is the Democratic Republic of Congo (DRC) and the Great Lakes region of Africa, specifically Burundi, Rwanda, Uganda and Tanzania), with funding from the Howard G. Buffett Foundation. “The campaign seeks to engage with all sectors of society in the region, encouraging all parties and coalitions to stand together in the name of peace, so that a significant level of non-violence and ceasefire (in conflict-affected areas) can be achieved on Peace Day by 2016 at the latest.”

Marketing Manager of Lynx, David Titman, commented: “We are thrilled to be raising awareness for Peace One Day as part of the Lynx Peace campaign. We recognised that photography is a key passion point for our guys and we want to encourage them to explore it further by capturing their version of peace.”

The trendy aftershave brand, popularised among the young male demographic for its adverts featuring unlikely-looking heroes chased by hordes of ravishing women, has buffed up its image at the same time as celebrating regeneration in the lives of its youthful fans.

head gardener at Tottenham Broadwater Estate with his young helpers

head gardener at Tottenham Broadwater Estate with his young helpers

The founder of Ballymun Estate's Workin' Class Records, with his creative young potentials

The founder of Ballymun Estate’s Workin’ Class Records, with his creative young potentials

Links

http://www.peaceoneday.org/about/impact

http://www.lynxeffect.com/product

https://www.linkedin.com/profile/view?id=189167396&trk=nav_responsive_tab_profile

http://www.mischiefpr.com/

‘Network marketing’ is not a dirty word: story of a highly successful business model

20 Jun
white Mercedes Benz

some deal sweetener

Network marketing companies get a bad press. There seems to be some kind of stigma attached to performing the role. Admitting you are in network marketing is almost as much of a social taboo as letting slip at a cocktail party that you are a traffic warden, or an electricity salesman.

‘Can’t you get any other job?’ is the underlying assumption. But in fact, many people treat direct selling as a second, or even third, string to their bow. And these organisations reward their consultants generously for their time and capital input.

Many are not obliged to reward their shareholders, with dividends, because they are private limited companies. This also means there is no legal requirement to publish their annual financial accounts, which explains the aura of mystery which seems to cloud public perceptions.

Let us sweep away some of those cobwebs of half-truth and rumour with some hard stats. Network Marketing Central’s 2013 report on the ‘Top 50 MLM Companies by Global Revenue’ showed direct selling organisations across the globe are thriving. And not just the long-established ones like Avon.

Swiss-origin health, beauty and skincare brand Arbonne earned a respectable $353million. Though it has some way to go before it catches up with its nearest European competitor Oriflame, the skincare and cosmetics brand based in Luxembourg, which netted $2.1billion. For purposes of comparison we have sidelined the German Vorwerk & Co, because its main area of operations is household appliances (it started out selling carpets).**

Oriflame has an impressive gadget to ‘prove’ the effectiveness of its products. Its ‘biophotonic scanner’ purports to measure carotenoid antioxidant levels in skin, to “prove the effectiveness of your supplements in improving your overall antioxidant health.” This tool is doubtless necessary to justify the prohibitive price-tag on its anti-aging products: the ageLOC Future Serum comes with a whopping £170.99 price tag, while in the same range its Radiant Day SPF 22 is at £52.22 a premium-price product.

Arbonne, the company I represent, has a comprehensive programme of rewards and incentives for its consultants which I assume is similar for its rival network marketing companies. The standout showpiece of the scheme is the ‘White Mercedes Benz Cash Bonus Programme’, which allows anyone who becomes Regional Vice President with £500 cash towards the lease of said Mercedes. But only as long as they remain Regional Vice President. If the net sales volume they are oversee drops too low, their flashy set of wheels will be towed.

For the rest, the cash bonuses escalate in scale as you climb the pyramid of seniority and have an increasing number of consultants, district managers and then area managers beneath you. Just like in your standard office, you receive a pay rise when you get promoted, and bonuses when you reach and exceed sales targets.

Arbonne responded promptly to a request for its sales figures for 2013: “Our total sales for the year are up across all markets +10%, and your income is up on average +17% for the year — by all accounts you are in real momentum, and the best is yet to come in 2014!” The company spokesperson reported that consultant sponsorship increased much faster, by 54%.

It seems sometimes like the independent consultants comprise a larger part of the company’s revenue stream than they suspect, or than the companies let on. Many of the special offers are targeted at consultants themselves: make an order valued above £150, you get £65 worth of goods for £20. Not to mention the substantial discount that these half-enfranchised vendors receive on all inventory.

But Lord help you if you fail to make it to your annual quota by the end of the year, or you will be booted out of the sisterhood (or, for equality’s sake, gender-neutral fraternity). Bye bye discounted skincare.

One girl confided to me that a major portion of her annual quota was made up at Christmas, partly due to customer orders but also thanks to Christmas presents she bought with her discount. Admittedly there is a limit to the amount of consultant-discounted items comprise the required total, and a set portion must be through organic sales.

 

** For those who are devotees of Teutonic efficiency and quality standards is provided this, Vorwerk’s online self-description of its line of “innovative, high-quality Vorwerk products that are so practical and useful, and last for an exceptionally long time.” Everlasting lipstick, folks. Get in.

Know also that “Innovative ideas make for maximum quality. This is an officially acknowledged fact.” Presumably the EU Commission has published a statement to this effect.

Adjudicator appointed to prevent supermarket giants abusing suppliers

1 Jul

groceries

 

The role of ‘Groceries Code Adjudicator’ has been formally established in law, with powers to advise suppliers to major supermarkets and to arbitrate disputes.

In line with a clause requiring the position’s creation under the Groceries Supply Code of Practice, an independent adjudicator was required to ensure the Code was fully and effectively incorporated into the terms of supply between major retailers and suppliers. This decision was supported through a consultation with 60 stakeholders.

It has emerged that the blockbuster supermarkets have occasionally been guilty of abusing their superior market position. This is delineated clearly in the fact a rule was required stipulating that retailers “may not require suppliers to pay for shelf space, although payments may be required for promotions or new product listings, where the payments are proportional to the risk incurred by the retailer in stocking the new line.”

Farmers have to pay supermarkets a ‘risk premium’ to stock their more unusual produce? What would it take to sweeten the deal on a cake recipe that had never been trialled? A line of damson jam? Should small suppliers have to subsidise the likes of Tesco and Sainsburys for the type of ‘risk’ that is a normal part of business life? Does consumer demand for ever-cheaper groceries come at a very high price for British agriculture?

The Groceries Code also stated that retailers “may not require suppliers to make payments for wastage unless due to the supplier’s default or negligence, or as provided for in the supply agreement.” Which suggests that previously, if stock went past its sell-by date while on the shelf, the supermarket would have been able to claim compensation?

Christine Tacon, who has been appointed the Adjudicator, will receive submissions and complaints in strict confidentiality. The department is already open to allegations of violation of the Code but stresses, “We will only be able to launch investigations after we have completed our consultation and finalised our guidance. We anticipate this will be by the end of the year.”

Further information on the relevant bills is available on the Department of Fair Trading website, but the results of the consultation were not published in full because many of the submissions were made in confidence. Those consulted included major retailers, suppliers, trade associations, non government organisations (NGO’s), unions, other Government bodies, church groups, charities and a number of private individuals (most of whom responded in support of ActionAid’s “Who Pays?” campaign.) All those who consented were sent a copy.

The Department of Fair Trading also stresses that only those engaged as suppliers or vendors of groceries, as defined in the following list, fall under the remit of the GCA. “Groceries” consist of: “food (other than that sold for consumption in the store), pet food, drinks (alcoholic and non-alcoholic, other than that sold for consumption in the store), cleaning products, toiletries and household goods.”

The definition does not include “petrol, clothing, DIY products, financial services, pharmaceuticals, newspapers, magazines, greetings cards, CDs, DVDs, videos and audio tapes, toys, plants, flowers, perfumes, cosmetics, electrical appliances, kitchen hardware, gardening equipment, books, tobacco and tobacco products.” So any tobacco company worried it is not getting a fair deal for its carcinogenic carbon-sticks will have to go elsewhere. Dyson too would not be able to cry foul if Aldi reneged on a contract for its vacuum technology, at least not to the Groceries Code Adjudicator.

Among the other important clauses of the Code are that “A Designated Retailer must not require significant changes to supply chain procedures without reasonable notice in writing or full compensation for costs incurred as a result of the failure to give reasonable notice.” Also, that payment must be sent through a reasonable time after invoice.

 

America’s answer to Weightwatchers surpasses $1bn sales

26 Mar

Image

ViSalus, the 90-day health and lifestyle solution, has announced sales of over $1bn at its National Success Training Event in Los Angeles, 22-24 March. Since 2011 the company has expanded by 171%. The high-profile celebrities in attendance included Hulk Hogan, Teresa Scanlan ‘Miss America 2011, and Jerry & Estella Hayes Season 7 ‘Biggest Losers: Couples.’

Co-Founder and Chief Marketing Officer Blake Mallen stated, “ViSalus helped over 1.5 million people make their health a priority in the last year alone. To celebrate this success, we kicked off 2013 with a campaign to conquer obesity.”  Mallen claimed more than 1,500 people have participated in Project 10™, an initiative which awards an aggregate $10,000 to 10 people who lose 10 pounds every week through participation in the Body by Vi 90-Challenge. To date, more than 15,000 pounds have been lost by Project 10 participants, with a total of $80,000 awarded to weekly winners so far this year.

ViSalus has announced its intention later this year to extend its fight against obesity to the United Kingdom, the percentage of whose population is the third most obese in the world, after Mexico and the US.  Currently one in four adults in the UK is obese, and by 2050 that figure is expected to increase to 60% of men, 50% of women, and 25% of children.

“Expanding to the UK is in keeping with ViSalus’s mission to take weight off the world,” stated Co-Founder and Crown Ambassador Nick Sarnicola. “Given the tremendous impact the Body by Vi 90-Day Challenge has had to the health and wellness of millions of people in the North America, we are excited at the prospect of dramatic improvement in the lives of people in the UK.”