Archive for the ‘Business’ Category

Auction for Alstom develops as GE and Siemens/MHI up their bids

June 20, 2014

UPDATE!

The auction could be over. It looks like the French government is backing GE’s offer and will itself take a 20% stake in Alstom.

France to Back G.E.’s Bid for Alstom Assets

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Once upon a time I was recruited by ASEA in Sweden. Then ASEA merged with BBC and through no action on my part I became an employee of ABB. Some years later ABB sold all its Power Generation business to Alstom (along with me) and – once again without any action on my part – I became an employee of Alstom. In due course I retired but one of my last actions was to sell off part of Alstom’s industrial power generation business to Siemens as part of a global divestment. Whereupon I was recruited by Siemens in Germany to help with growing the business just acquired from Alstom. And then I finally did “retire” – insofar as “retirement” means that I can now reject engagements which do not interest me.

So the current battle going on between GE on the one hand and Siemens/MHI on the other to acquire all of Alstom’s power generation business is of particular interest. The Alstom Board which had -in principle – accepted GE’s offer, is now faced with evaluating two rival bids. During this week both have improved their bids.

Alstom’s Board will convene no later than June 23 to review the bids.

My personal view is that that the Alstom need for divestment is driven not only by their debt but – perhaps more importantly – by the desire of their largest shareholder to exit. Bouygues owns 29% of Alstom and came in – at the behest of the French Government – when Alstom were in dire straits. But now Boygues themselves are in some trouble and need to exit and they need to convert their 29% to as much cash as possible. With Alstom paying no dividend, Bouygues’ 29% holding represents about €2.5 billion locked up as a non performing asset. So in my view the critical points for Alstom in selecting a buyer will be

  1. ensuring that whatever is left of Alstom after the divestment is more than merely viable, and
  2. that Bouygues gets the maximum cash return for its 29% in a “clean” and lucrative exit.

In any event a good, old fashioned, “bidding war” between GE and Siemens/MHI is probably a good thing for all Alstom shareholders – including Bouygues. I recall – during my time with Alstom – when Alstom was forced to sell its profitable industrial power generation business. The final sale price ended up about 48% higher than Alstom’s internally evaluated value – just because an auction did develop between Siemens and Hitachi. And the auction did not just happen – it took much time and effort to promote.

Whether the Alstom Board can engineer a “good” auction to the benefit of the remaining Alstom train business and their shareholders remains to be seen.

Bloomberg: 

Immelt is in Paris to present new details of GE’s $17 billion plan to officials including Economy Minister Arnaud Montebourg, according to GE. Negotiators for the U.S. manufacturer continue to refine specifics ahead of a June 23 deadline, including the structure of Alstom’s renewable energy, grid and transport businesses, the company said.

Seven weeks after unveiling its proposal for Alstom’s energy operations, GE confronts a counterbid by Siemens that seeks to carve up Alstom together with Japan’s Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) The Siemens proposal values the energy assets at 14.2 billion euros ($19.3 billion).

Immelt’s return to Paris underscores the stakes in a deal that would give Fairfield, Connecticut-based GE control of Alstom’s technology for electricity transmission and power-plant maintenance as Europe’s economy starts to recover. The acquisition would be GE’s biggest ever and bolster Immelt’s push to return the company to its industrial roots.

Reuters:

Siemens and Mitsubishi Heavy Industries (MHI) raised their offer for Alstom’s energy businesses to compete with a revised bid by U.S. rival General Electric.

Siemens-MHI and GE have been facing off in a battle for control of Alstom’s power businesses that has seen the Socialist government give itself powers to block any deal in the name of protecting local jobs and influence over a strategic sector. 

Under their amended offer, Siemens-MHI would pay 8.2 billion euros ($11.2 billion) in cash rather than 7 billion and value Alstom’s power businesses at 14.6 billion euros, 400 million more than previously and still well above GE’s 12.4 billion.

……. The improved Siemens-MHI proposal still foresees Siemens buying Alstom’s gas turbine business. But MHI is now offering to buy a 40 percent stake in the combined steam, grid and hydro business of Alstom and bundle them in a holding company. It previously planned to create three joint ventures by acquiring 40 percent of the steam business, 20 percent of grid and 20 percent of hydro. The change will increase MHI’s share of the cash payment to 3.9 billion euros from 3.1 billion. Siemens’s contribution rises to 4.3 billion euros from 3.9 billion, with the company saying the increase was based on “a subsequent, more advanced opportunity/risk analyses”.

In addition, Siemens is offering to immediately enter into a joint venture for mobility management, including signalling, with Alstom.

Ericsson’s headcount in India now exceeds that at HQ in Sweden

June 11, 2014

Ultimately, adding value as close to the customer as possible is not only inevitable but it is also going to be the critical criterion which determines which companies will survive.

Ericsson the Swedish manufacturer of telecommunications equipment has just passed a kind of milestone when its headcount in India has now exceeded the headcount at its headquarters in Sweden. This will be seen negatively in Sweden especially by the unions, but it is this readiness and ability to get close to the market which actually gives me confidence that they are on the right track. Ericsson, I think, have played this balancing act of changing roles at headquarters while growing close to the market rather well. (Which is why I have Ericsson in my portfolio).

Mobiletor: Ericsson which prides itself as a growing provider of communications technology and services, now has more employees in India than it does in its home country of Sweden, according to the company’s Facts & Figures web page. The headcount is 17,991 staff in India and 17,545 employees in Sweden, with about 80 percent of its workforce being male. In total, Ericsson has 111,383 employees from across the world working for it and has its headquarters in Stockholm, Sweden. …..

India is the fastest growing smartphone market on the globe and 4G LTE is still at its nascent stage, with few operators still appearing to be in the mood for testing the waters before diving right in. Going by an Ericsson report, the country’s mobile broadband users will grow in number to touch four times the present figures by the year 2020. This is directly tied to the 80 percent of consumers who still haven’t adopted smartphones and are yet to experience the mobileweb.

Ericsson have a fairly upbeat view of the mobile market in the latest Ericsson Mobility Report and their own prospects:

The number of mobile subscriptions worldwide grew approximately 7 percent year-on-year during Q1 2014. The number of mobile broadband subscriptions grew even faster over this period – at a rate of 35 percent year-on-year, reaching 2.3 billion. The amount of data usage per subscription also continued to grow steadily. Around 65 percent of all mobile phones sold in Q1 2014 were smartphones. Together, these factors have contributed to a 65 percent growth in mobile/cellular data traffic between Q1 2013 and Q1 2014.

By 2019, global mobile broadband subscriptions will exceed the world population.

Total mobile subscriptions are expected to grow from 6.8 billion in Q1 2014 to 9.2 billion by the end of 2019. Global mobile broadband subscriptions are predicted to reach 7.6 billion by 2019 and will gain an increasing share of the total mobile subscriptions over time.

Mobile broadband users in India will grow in numbers to reach four times the present figures by 2020. In 2013, people accessing data on their mobile devices reached 90 million. The smartphone penetration of 10% or 90 million devices will grow to 45% or 520 million mobile gadgets by 2020. The mobile subscriber base is expected to increase from 795 million last year to 1145 million by 2020.

AstraZeneca prepared to talk to Pfizer if bid is increased another 10%

May 19, 2014

According to the Svenska Dagbaldet

After AstraZeneca today rejected Pfizer’s latest bid of nearly 770 billion kronor, it looks like no deal for this year But in its written response to the bid Astra Zeneca’s board writes that it is prepared to negotiate with Pfizer if the bid is raised by ten percent.

So I suspect that it may be better for shareholders in AstraZeneca to sit tight and wait for the next bid – but it may take a few months. In the worst case, holding on to an independent AstraZeneca is not such a bad deal in the long run.

I have been a little amused with the conservative politicians in Sweden and the UK abandoning their “free market” principles and  invoking the “public interest”  to oppose the deal. But unless they can convert their concern for the “public interest” into something tangible for AstraZeneca shareholders, they are doing them a disservice. In fact I would argue that without acknowledging that the AstraZeneca shareholder interests are also a public interest to be protected, both Cameron’s government and Reinfeldt’s government are engaging in an extra-legal, repressive and discriminatory behaviour.

Needless to say the Left and the Communists are opposed to the deal on religious grounds because rationalisation  – if it leads to the loss of any jobs and even redundant jobs –  is always a great SIN.

Markets surge as Indian exit polls are awaited after close of polls today

May 12, 2014

UPDATE!

Narendra Modi - The next Indian Prime Minister (photo Forbes)

Narendra Modi – The next Indian Prime Minister (photo Forbes)

The real results have to wait till Friday but early exit poll results suggest that

  • the BJP led alliance (NDA) will get over 280 seats in the Lok Sabha (272 needed for majority) while the Congress led alliance (UPA) will get less than 120 seats. 
  • BJP will be the largest single party
  • the AAP may get 5 seats
  • Narendra Modi will be the next Prime Minister

The markets rose over 3% today.

Turnout was a record at just over 66% (of an electorate of over 800 million voters).

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The Indian markets are reacting to rumours and “inside information” as to what the exit polls will reveal when they are published later today. The Election Commission has confirmed that the results of exit polls – which have been carried out over the last 6 weeks of polling and are prepared and waiting to be released – can be released after the polls close at 1830 local time (1500 CET) on the last day of the last phase of voting today.

Exit polls don’t have a very good record in predicting the result of Indian elections – especially when they are extrapolated. But we have the peculiar situation of markets being driven by the expectations of what the exit polls will say and where the actual results will not be known till Friday. Capital inflow from overseas has been particularly high and there is a feeling that this cannot be just on the advice of local investors without any special knowledge. There is a suggestion – not at all implausible – that some large investors and their overseas partners may well have carried out their own, private, exit polls. And, the story goes, these show that Narendra Modi and the BJP will get close to an absolute majority.

On Friday the BSE Sensex rose over 3% and so far today has risen another 2+%  – over 1000 points in a day and a half of trading.

BSE Sensex 12th May noon

BSE Sensex 12th May noon (Reuters)

NDTV

It seems that investors are betting that the BJP-led NDA will emerge victorious on May 16, when results are announced, analysts say.

“There is a lot of political hope that has got baked in valuations. Markets are factoring numbers close to 230-240 seats for the BJP alone, and if that is the case, the NDA will get a majority on its own. That will lead to pro-growth, right of central, stable formation, which is enthusing for the investors,” said Manishi Raychaudhri, strategist and head of research at BNP Paribas Securities.

Polls have consistently shown the BJP and its prime ministerial candidate Narendra Modi ahead, raising expectations that the opposition party, which is seen by markets as being more investor- and business-friendly, will either win or come close to an outright majority. The surprising part, however, is markets seem to be factoring in the best possible scenario (stable government led by Mr Modi) even before exit poll results, due later in the day. 

 One possibility why markets have not waited for exit poll results might have to do with speculation that big investors have already got a whiff of what results would be. In fact, overseas investors bought shares worth Rs. 1,268.78 crore in the cash market on Friday, their biggest purchase since March 28. Friday’s gains came at a time when markets had shed 2 per cent after hitting a record high of April 25. Clearly, smart money had some information. 

Deven Choksey, managing director of brokerage KR Choksey told NDTV that somewhere from the media, numbers suggesting that the BJP will get 260-270 seats, came out. It was in circulation on social media and markets took advantage of that, he said.

 

Boeing 787 Dreamliner still not out of the woods

March 9, 2014

The Dreamliner woes continue with cracks in the wings found during manufacture and another emergency landing for a JAL Dreamliner. And in the meantime Norwegian Airlines is in rough seas as a consequence of their Dreamliner problems but have still ordered another four aircraft. Their eggs are all in the Dreamliner basket now but Boeing must have provided a great many sweeteners. The Dreamliners are proving not to be as fuel efficient as it was claimed they would be when they were being sold. Air India which has taken delivery of 13 Dreamliners and has a total of 27 on order is also reported to be seeking compensation from Boeing.

JAL Dreamliner makes emergency landing in Honolulu

Japan Airlines said Sunday its Dreamliner flight from Tokyo to San Francisco made an emergency landing in Honolulu, reportedly due to a possible problem with its hydraulic system.

The pilot of flight JL002, carrying 171 passengers and crew, decided to divert to Hawaii after a warning message about falling pressure of lubricant oil in its right engine, according to Japanese national broadcaster NHK.

Boeing Has a New 787 Dreamliner Headache With Wing Cracks

Boeing’s 787 is the airplane program that keeps on giving—problems. The company will inspect about 40 airplanes and delay some 787 deliveries after Mitsubishi Heavy Industries, which makes the plane’s carbon fiber wing, discovered small cracks in newly built wings following a change in its manufacturing process, Boeing said Friday.

The cracked area is very small and will require repairs that will take a week or two per airplane, Boeing spokesman Marc Birtel said. “We are confident that the condition does not exist in the in-service fleet,” the company said in an e-mailed statement. “We understand the issue, what must be done to correct it, and are completing inspections of potentially affected airplanes.”

Mitsubishi Heavy crafts the wings in Nagoya, Japan, and Boeing flies them to its 787 assembly plants in Everett, Wash., and North Charleston, S.C. About 17 of the 787s being inspected are fully completed, and seven have been undergoing predelivery flight tests, according to the Wall Street Journal, which first reported news of the cracks.

Profits down after Dreamliner dramas

Norwegian Air reported a profit in 2013 for the seventh year running on Thursday, but takings were significantly down on previous years. Major problems setting up its new long-haul routes with trouble-plagued Boeing 787 Dreamliners led to a huge amount of customer complaints, and the budget carrier angered unions and other airlines over pay conditions and its use of cheaper Asian crews. Norwegian reported its pre-tax profits for 2013 were NOK 437 million (USD 71.5 million), down from NOK 623 million in 2012. The airline lost NOK 283 million in the fourth quarter.

Norwegian orders four more Dreamliners and reports Q4 losses

Norwegian Air Shuttle announced on Thursday the lease of four more Boeing 787 Dreamliner aircraft, despite a series of technical hitches with the planes. The contract, which brings Norwegian’s planned Dreamliner fleet to 14, was signed with the US aircraft leasing company International Lease Finance Corporation (ILFC) but no financial details were released.

Boeing Says Air India Unhappy With 787 Dreamliner’s Performance

Boeing Co. said Air India Ltd. is dissatisfied with the performance of its 787 Dreamliner, joining other carriers including Norwegian Air Shuttle ASA in slamming the manufacturer for repeated faults on its marquee jet. “Yes, they are not happy with the reliability portion, neither are we,” Dinesh Keskar, a senior vice president at the Chicago-based planemaker, said in an interview at the Singapore Air Show today. “Over the last few months, we understood which are the components that were causing issues, which software needs to be upgraded.”

…. Air India diverted one of its 787s to Kuala Lumpur this month as a precaution after a software fault on a flight to New Delhi from Melbourne. Boeing is upgrading software and changing some components on Air India 787s whenever the planes can be taken out of service, Keskar said, adding that a 13th Dreamliner will be delivered to the carrier this month. …… Air India, which has ordered 27 Dreamliners, will seek compensation from Boeing after the carrier found that its 787s aren’t as fuel efficient as the planemaker had claimed while selling them ……. Fuel efficiency of the Dreamliner is improving after earlier models didn’t “quite make the mark” on this count, Keskar said.

Chinese corporate bonds no longer have a government backstop as solar cell firm defaults

March 7, 2014

Overseas investors have so far assumed that Chinese corporations would be bailed out by banks and the government if there was any danger of them defaulting. That assumption has now gone up in smoke as the Chinese Government – probably intentionally and as a signal – has allowed Chaori Solar to default. Chinese corporate bonds are now going to get a lot less attractive.

The strange fact about solar subsidies – around the world – is that the equipment manufacturers and the consumers have not benefited. Only plant developers have effectively walked away with the subsidies and they are usually very good at milking subsidies. As subsidies dry up it makes more sense for them to just walk-away. Solar (and wind) equipment manufacturers ramped up their production capabilities – sometimes by very expensive acquisitions – and are now in dire straits as subsidy reductions has caused the market to dive.

Bloomberg:Chaori Can’t Make Payment in China’s First Onshore Default

A Chinese solar-cell maker failed to pay full interest on its bonds, leading to the country’s first onshore default and signaling the government will back off its practice of bailing out companies with bad debt.

Shanghai Chaori Solar Energy Science & Technology Co. (002506) is trying to sell some of its overseas plants to raise money to repay the debt, Vice President Liu Tielong said in an interview today at the company’s Shanghai headquarters. The company said March 4 it will only be able to pay 4 million yuan ($653,990) of an 89.8 million yuan coupon due today.

The BBC warns:

Up until now, the Chinese government and state-owned banks have helped bail out or provide last-minute loans to Chinese firms in trouble. That has led many investors to park their funds in the corporate bonds of many Chinese firms, on the belief that the government would help ensure that these firms could continue to repay their debts.

However, a significant portion of this debt is set to mature in 2014 – with more than $1.5 trillion of corporate bonds outstanding at the end of January. …… That is why the Chinese government may be making a strategic decision to let some firms fail – particularly those, like Chaori, that may not have a huge knock-on effect in the market.

China’s solar industry has been suffering from an overcapacity problem for some time, as cheap financing and local government support led to a glut of firms entering the industry. That has led to a sharp fall in price, and the Chinese government has since hinted that it supports consolidation in the industry. ……… 

Yet while some see the default as a good thing for China’s corporate bond market, others worry it could be a sign of a wave of defaults to come. Bank of America analysts wrote in a recent note that the default could be “China’s Bear Stearns moment”. “In the US, it took about a year to reach the Lehman stage when the market panicked and the shadow banking sector froze,” they wrote. “We assess that it may take less time in China, as the market here is less transparent.”

Why insurance companies love alarmism

March 5, 2014

A fundamental for all insurance companies is that their profits are highest when perceived risk is higher than actual risk. There is a double benefit when the perceived risk can be hyped by alarmism  – whether about hurricanes or earthquakes or epidemics. The greater the alarmist meme, the higher the premiums that can be charged for the perceived risk. It is not surprising therefore that there is no insurance company which will publish a report – any report – about decreasing risks. It’s bad for business. But any alarmist report helps put up premiums for no increased risk. It is why many of them (and Munich Re comes easily to mind) employ many academics to produce alarmist reports. They find new risks to be alarmist about so that new insurance products can be invented.

And as Warren Buffet points out climate change alarmism has simply made hurricane insurance more profitable, driving up premiums without increasing risk”.

CNSNews: Any climate alarmist will tell you that climate change is increasing extreme weather events, but liberal billionaire Warren Buffett easily destroyed that argument.

Buffett told CNBC March 3, that extreme weather events haven’t increased due to climate change, saying that weather events are consistent with how they were 30-50 years ago. Buffett, who is heavily invested in various insurance markets, said that climate change alarmism has simply made hurricane insurance more profitable, driving up premiums without increasing risk

Buffett said the supposed increase in extreme weather “hasn’t been true so far, Joe. We always think it’s cold. We always think it’s cold in Omaha. But, it was cold in Omaha 50 years ago.”

CNBC’s Becky Quick asked Buffett on March 3’s “Squawk Box” if extreme weather events have increased, affecting insurance markets. Buffett responded that “the effects of climate change, if any, have not affected our – they have not affected the insurance market.”

Specifically, Buffett rejected claims that hurricanes have increased due to climate change, citing his experience in hurricane insurance. He said “we’ve been remarkably free of hurricanes in the United States in the last five years.” He added “If you are writing hurricane insurance, it has been all profit.”

Buffett compared the climate to previous decades, dismissing claims that weather events have been more unusual. He said “I think that the public has the impression that because there has been so much talk about climate, that events of the last 10 years, from an insured standpoint on climate, have been unusual. The answer is, they haven’t.”

 

Global Big Maconomics

February 11, 2014

Norway is a lot more expensive than Sweden. This is not lost on McDonald’s advertising agency DDB in Stockholm and they have installed this billboard straddling the border to persuade Norwegians to cross over for their burgers. Many Norwegians cross the border in any case to shop and most road borders have retail outlets and supermarkets on the Swedish side to cash in on this. Food alcohol and, it seems, Big Macs offer significant savings.

Norway - Sweden Big Mac

Norway – Sweden Big Mac

Eighty nine Norwegian kronor is about 93 Swedish kronor and so the Big Mac meal (including a drink and fries) is about 30% cheaper in Sweden. McDonalds have not revealed how effective this has been in attracting Norwegians.

TheLocalNorway once again boasts the world’s most expensive Big Mac, the UK’s Economist magazine has reported, with the ubiquitous double-decker burger now costing 48 kroner, or $7.80. 

Venezuela slips into second place with a $7.15 burger. Switzerland, which briefly stole the top spot last year on the back of a burgeoning Swiss franc, is now in third place with its $7.14 burger, followed by Sweden ($6.29) in fourth. 
 
The burger in Norway is on average 68.8 percent more expensive than it would be in a McDonald’s in the US. 

The cheapest Big Mac in the world is in India at $1.54. China at $2.74 and Japan at $2.97 are surprisingly close. Of course the current currency exchange rates also have an impact.

The Economist invented the global Big Mac Index in 1986. The 2014 Big Mac index was released a few days ago with January 2014 exchange rates.

THE Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in January 2014 was $4.62; in China it was only $2.74 at market exchange rates. So the “raw” Big Mac index says that the yuan was undervalued by 41% at that time. 
 
Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies. For those who take their fast food more seriously, we have also calculated a gourmet version of the index.

This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today’s equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency. The adjusted index uses the “line of best fit” between Big Mac prices and GDP per person for 48 countries (plus the euro area). The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation.

Click here for the interactive map.

big mac index - the economist

big mac index – the economist

Is PwC plagiarising Andreff’s Sochi Olympic result predictions?

February 7, 2014

In November last year I posted about this paper which used economic factors to develop a model for Olympics medal results and then used the model to predict medals won at the Sochi Winter Olympics starting today. Today Price Waterhouse Coopers (PwC) have with great fanfare made their predictions for the winter Olympics. In their press release they make no mention of this earlier paper

W AndreffEconomic development as major determinant of Olympic medal wins: predicting performances of Russian and Chinese teams at Sochi Games, in Int. J. Economic Policy in Emerging Economies, 2013, 6, 314-340.

The PwC predictions are slightly different but remarkably similar to the results published by Andreff. They claim to have looked at the same factors as Andreff did. They make the same prediction of home advantage for Russia as Andreff did. I don’t have access to their full report but their press release makes absolutely no reference to the earlier paper and seeks to take credit for the analysis. If their report makes no acknowledgement of the work by Andreff then it does look very much like plagiarism by PwC. Even if their “econometric” model has been developed independently, it is still a plagiarism of ideas if an acknowledgement of Andreff’s analysis has not been made.

Andreff Result Predictions:

Medal predictions Sochi 2014 - M Andreff

Medal predictions Sochi 2014 – M Andreff

PWC Medal Predictions

PWC sochi predictions

PWC sochi predictions

Press Release via ConsultantNews:

London, 31 Jan 2014As with the Summer Olympics, home advantage could play a key part in how the Winter Olympics medals are shared out next month – with hosts Russia looking set to capture a record haul.

But the hosts – along with close rivals Germany, Canada, Austria and Norway – will have their work cut out to catch the US team. Further down the table, after their London 2012 Olympics success, the GB team may have to settle for just a couple of medals. And unfortunately the cool Jamaican bobsled team don’t even make it into the running. 

Once again, economists at PwC have used their skills to project the likely medal tally – this time for the Olympic Winter Games at Sochi starting on 7 February. Their analysis is based on econometric modelling, testing the historic correlation between a range of socio-economic metrics and historic medal success.

The modelling results show that the size of the economy is significant in determining success, with total GDP appearing as a significant variable. However, a large economy is not sufficient on its own for a strong performance. Climate is an important factor, with snow coverage and the number of ski resorts per head having a significant and positive impact on medal shares.

Larger, developed countries with the right climate dominate the top of the projected medals table; but Austria and Norway demonstrate that a smaller economy is not a barrier to success, with a greater estimated medal haul than countries such as China and France.

William Zimmern, PwC economist, said: “While this is a light-hearted analysis, it makes an important point of how organisations can use economic techniques to help make better business decisions. The purpose of our model is not to forecast medal totals with complete accuracy, but rather to increase the predictive power of medal projections over and above using historic medal results alone.

The model allows us to make better, more confident and more informed forecasts. Businesses can use similar techniques to do the same.”

Home advantage – PwC

We used regression analysis to produce the results in Table 1, employing a Tobit model to estimate medal share for the 28 countries which have won at least one medal in the last three Winter Olympics. The variables used were total GDP, ski resorts per head, level of snow coverage, medal shares in the previous two Winter Olympics, and dummies for countries with a “tradition” of winter sports and for host countries.

I have worked with PwC many times during my career. They are very effective but they are not slow in trying to take credit wherever they can – even if it is undeserved. And their ethics are generally as lacking as is endemic in their industry (audit/consultancy).  A little bit of plagiarism by PwC – and not for the first time – would not be a great surprise.

Intrusive ads are counter-productive – at least with me

February 6, 2014

I must be representative of some consumers since I do buy stuff.

I even buy quite a lot of stuff on-line. Tickets of any kind (theatre, airline, museum, train, football, hockey bus ……), books, music, electrical and electronic gadgets and a host of small articles capable of being delivered by post. We book hotels on-line and sometimes pay on-line as well. We generally don’t buy food or clothes on-line but we do sometimes (at least my wife does) respond to the flyers dropped into our letter box by local retailers. Nearly all automotive products or materials for house repairs are bought physically and not on-line though we may have searched on-line.

But what I observe is that when I buy-on line it is from sites that I know or for which I have searched on-line. Never by clicking on an ad at another site. Even when I search I always hop over the paid ads which show up at the top of the search results. For a store to show up in a search result is much more important in getting my custom than in their advertising having been seen on another site. I cannot recall a single instance in the last year of buying something in response to an on-line ad. But what I also observe is that there is some threshold level of intrusiveness which leads me to remove sites from my bookmarks. If a site directs me first to full-page ads which I have to click away – and especially if they make it difficult to find the “close” button – then those sites get removed from my bookmark lists. I don’t watch videos on-line if their ads don’t disappear within 5 seconds. If my mouse, when hovering over text, brings up too many intrusive ads then the entire site gets onto my “black-list”. I don’t mind registering for some services at some sites but if that process takes longer than about 30 seconds (perhaps a minute) then that site never gets visited again.  Of course it could be that some of the on-line ads are having a subliminal effect and reinforce my perceptions when I search for on-line stores – but it is not very likely.

Even on TV and especially since the break for commercials is so long (in Sweden a commercial break lasts 6 minutes and there are not many ads of high quality), the commercial break either leads me to surf other channels or to go do something else. In the last year or two I notice that there are more TV programmes that I watch only up to the first commercial break because I then go and do something else and never get back in time to watch the rest of the programme. If it is a sporting or political event, then I may well return to the programme – after the commercial break. In any event the people paying vast sums for making and airing the commercials do not capture my attention. If anything they create a resentment in me since I am either a “captive audience” or am being coerced to view their “nonsense”. And it is the resentment which leads to the content being classified in my mind as “nonsense”. I never watch TV shopping channels but they clearly don’t have me as their target audience. The very existence of the commercials is leading me to strategies to avoid them!

My behaviour is surely influenced by the presence of ads on-line and commercials on TV. However, the behaviour engendered in me is nearly always counter-productive from the viewpoint of the advertiser. Maybe I am an untypical consumer – but I doubt it.  Which makes me wonder how effective some of this advertising is?

Certainly advertising agencies and the industry in general will never admit that there can be too much advertising. They get paid for exposure (or apparent exposure) and not for sales achieved. They don’t suffer any penalty for resentment caused or customers driven away. But I would suggest that there is a threshold – very low in my case – at which on-line advertising and commercials on TV become counter-productive.

I get virtually no text ads on my phone. I stopped using Facebook and Twitter some months ago so at least I am not harassed by their ads. But from what I hear, the intrusiveness of the ads on the social media are now leading to some people reducing their use and, in some cases, ending their use of social media. Social media and their business models are still evolving but the assumption that advertising revenues can keep increasing forever is fundamentally flawed.

BBCTwitter reports $645m loss for 2013

Microblogging site Twitter has reported a net loss of $645m (£396m) for 2013, just three months after its flotation on the New York Stock Exchange. The loss was expected by analysts, who highlighted Twitter’s revenues, which rose 110% last year to reach $665m.

But a reported slow growth in user numbers was a bigger concern for investors. Twitter averaged 241 million monthly users in the last quarter of the year, up just 3.8% on the previous quarter. That represents a slowdown compared with a growth rate of 10% seen at the beginning of 2013. Timeline views were down nearly 7%, suggesting users were refreshing their feeds less often.

“What this report will do is it will question how mainstream is Twitter as a platform,” said Arvind Bhatia, an analyst at Sterne, Agee & Leach.

Shares fell as much as 12% in after-hours trading on Wednesday.


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