Neville Prior 25 November 2015 01:01:53 PM
Global exports are expected to total US$68.5tn by 2050 – four times their 2015 level – according to a new HSBC study that predicts a third wave of globalisation despite a recent fall in trade volumes. HSBC and Oxford Economics recently gathered expert opinions and analysed 150 years’ worth of data from key trading nations to understand the future of trade, determining patterns and growth factors in the Trade Winds report.
The report foresees a world in which service-led industries are dominant and where businesses with explicit sustainability goals will succeed. “Making sure supply chains are sustainable will increasingly be a trend,” says Joshua Meltzer, senior fellow for global economy and development at the Brookings Institute.
The demand for services will have to be reflected in traditional manufacturing companies’ product portfolios. “The trade of services is the future and the way we deﬁne world trade volumes will need to be changed as a result. If we look at smartphones, only a percentage of the work that goes into this product is hardware. The services which are provided in terms of software updates also need to be accounted for,” says Stuart Tait, global head of trade and receivables finance at HSBC.
“This model of increasing export of services will continue to extend beyond traditionally outsourced activities into new areas like healthcare and education,” adds Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.
From these insights, the report identifies five trends that will benefit overall trade volumes: 1 Industrial evolution: digital innovation and the drive to sustainability
Digital innovation will continue to provide opportunities for businesses and individuals. New technologies create fresh products and business models that can be adapted for different markets, undermining the importance of location. Increasingly interconnected economies will bring rapid change and transmission of ideas around the world. “There will be 5 billion people online by the end of this decade, and this growth is coming from the developing world. This is a fundamental change. The internet and the free movement of data across borders underpins growth in international trade and investment […] Smart data innovation has the potential to drive tremendous efﬁciencies and optimise every cycle, which ultimately will drive overall economic growth,” says Meltzer.
The supply chain will need to innovate to respond to increasing expectation and demand for greater sustainability, especially as some markets become stricter in setting sustainability criteria as part of their multilateral efforts to counter global warming. 2 Reverse innovation and mass customisation
Reverse innovation is a growing phenomenon in which companies initially develop products and services for emerging markets rather than the developed world. Products can then be customised as they are sold into different markets, representing a shift from mass production to mass customisation. Customisation will benefit from analysing growing volumes of customer data and using sophisticated marketing techniques to understand and influence customer requirements. An increasing ability to use data to track the world today, and forecast the future, will enable companies to build intelligent systems that track information and consumer demand. The development of 3D printing will contribute to innovation in the supply chain, with many local factories producing goods on demand through the technology (a phenomenon known as additive manufacturing). Factories of the future “will be small and ﬂexible rather than large and rigid, and located close to the end customer. Forensic data analysis tools will be used to identify patterns in big data, and best practices and improvements will be instantly shared across the factory network via the cloud,” says Graeme Philp, CEO of Gambica (the UK trade association for the automation, instrumentation and control and laboratory technology industries). 3 The rise of micro-multinationals
Digital disruption and tightly connected global networks provide an opportunity for small and mid-sized companies (SMEs) to level the competitive playing ﬁeld against larger ﬁrms. New technologies such as 3D printing will enable smaller players to deliver products anywhere in the world. As one example of the increased success of SMEs, a 2013 study by online commerce platform eBay found that 95% of SMEs on the eBay network engage in exporting, reaching between 30 and 40 international markets. According to the report, 60%-80% of the new businesses analysed ‘survive’ their ﬁrst year, while the respective ﬁgure for traditional exporters is around 30%-50%. “It’s the democratisation of the global economy through the capacity of SMEs to get online in developing countries,” says Meltzer. “There are opportunities for new players that have been marginalised to date […] Digital platforms are overcoming many costs which previously held SMEs back from trading small goods internationally.” 4 Trade reclassified: the falling cost and rising speed of trade
By 2050, trade will be boosted by improvements in logistics. The cost of shipping will fall, driven by a combination of larger vessels and the expansion of shipping lanes. New airports, with increased energy efficiency and further streamlining of border control processes, will speed up trade and reduce air freight costs too. In addition, continued advances in transport technology and infrastructure will increase capacity, opening up new trade routes. 5 Ongoing trade liberalisation
The pace of trade liberalisation will continue with the extension of free trade and the continuing harmonisation of standards and regulations to reduce barriers to trade, fostering the rise of “mega-regionals”. A more stable political and currency environment is anticipated, making trading easier for companies around the world.
“By 2020 we will have the new rules and terms of organisation of trade and investment that should allow countries to go back to the multilateral trading system. We will see more and more plurilateral agreements within the multilateral system – it will become a club of clubs,” says Ricardo Melendez-Ortiz, co-founder, chief executives at the International Centre for Trade and Sustainable Development (ICTSD). According to HSBC’s report, China, the US and Germany will keep leading the world’s trading patterns – but with the US and Germany on a downward trajectory, with South Korea looming behind them, on the rise.
Forecasting for the next 35 years, one cannot ignore hurdles and periods of instability. The report lists these factors as potential risks to the global system that could negatively impact trade:
• National security risk and terrorism
• Geopolitical uncertainty and instability
• Economic crises, recession or even periods of low growth – including in China and other developing economies.
• Regulatory requirements on local economies and industries
• Countries returning to protectionism
• Climate change
• Political reaction against the perceived negative impacts of globalisation (for example growing inequality).
Neville Prior 18 November 2015 03:18:36 PM
The global cosmetics market has grown by 3.8% over the past ten year to
€181 billion, a report from EY finds. L’Oréal is globally the largest luxury brand and is expected to show continuous strong business growth as consumers seek higher quality more innovative cosmetic products. The report further finds that while EBITDA margins remain high across the industry, from demand for higher quality brand names, high advertising costs at more than 25% of sales, continues to be a drag on margins.
To map out the future of the industry, EY
released its annual survey of the luxury and cosmetics industry, titled ‘Seeking sustainable growth: The luxury and cosmetics financial factbook 2015 edition’. As the title suggests, the industry is maturing, with growth in the cosmetics marker remaining sustainable. The report is made up out of three components: several standard valuation parameters and operating aggregates; industry characteristics (in terms of growth forecasts and drivers); and an overview of 29 major actors within the industry.
The cosmetics market has seen relatively stable growth over the past ten years of 3.8%, pushing up the total market value from €127 billion in 2005 to hit a projected €181 billion in 2014. The latest growth figures, expected for 2014, put growth slightly behind the average, at 3.6%. Only in the early crisis years of 2008 and 2009 was there a significant slowdown in growth at 3% and 1% respectively. The market’s resilience over the past decade is mainly due to consumer behaviour around the need for cosmetics remaining stable. Internally, change is afoot as consumers are starting to focus on quality performance and perceived results, and are open to new technology, more sophisticated dermocosmetic products and new retail distribution models. The research finds that the market is mainly supply-driven, and fuelled by innovation.
The largest cosmetic good by type is the skincare market, which accounts for 35% of total market share, followed by hair care at 23%. Makeup and fragrance make up the following two largest segments at 17% and 13% respectively. Hygiene items come in at 11%, while all other types make up 1%. In terms of growth rates, dermocosmetics comes in at 5.1%, followed by makeup at 5.0%. Most cosmetics are sold in the Asia/Pacific market, which represents 35% of the overall market. Western Europe comes in second at 22%, followed by North America at 21%. Latin America comes in with 12% of market share and Eastern Europe with 7%. Growth in Western Europe remains sluggish though, at a below average 3%.
L’Oréal continues to dominate the top 7, and is and larger than the rest of the top 7 put together, at €93 billion in market capitalisation. The leader saw below the median 2.4% long term growth at 2%, and has a weighted average cost of capital (WACC) of 7.9%. Estée Lauder comes in second with market capitalisation of nearly €29 billion and 2.5% growth. Beiersdorf is the third largest seller of cosmetics with a market capitalisation of around €18 billion and just below median 2.3% growth. Coty comes in at number 4 with almost €7.5 billion in market capitalisation and 1.8% growth. Shisedio tops off the top five with €6.7 billion in market capitalisation and a WACC of 4.1%.
L’Oréal has two divisions that account for 76% of the group’s revenues and 90% of the EBIT: Consumer Products and L’Oréal Luxe. L’Oréal Luxe accounted for an actual 28% of total sales of €22.5 billion. The division is expected to grow at 7.8% between 2013A and 2017E to hit 29% of total sales by 2017. Consumer Products last year generated 48% of the company’s sales, but with CAGR of 4.6% will see the division’s share of total sales drop to 47% by 2017. In terms of operating income, L’Oréal Luxe is anticipated to grow from €1.17 billion in 2013 to €1.65 billion in 2017, with a CAGR of 8.9% over the same period. Consumer Products will continue to see relatively stable growth of 5.5% on net operating income over the same period.
When looking at EBITDA of the various cosmetics dealers, Natura is expected to continue its strong growth position to hit 21.9% over the coming decade. L’Oréal comes in at number two at 21.2% and Estée Lauder at number three, with EBITDA of 19.3%. The average across all companies stands at 17.4%, with Shiseido pulling down the average on low 9.8% margins. The key drivers for improvement in the operating margins are the higher prestige products (which bear higher price tags and margins) in emerging markets and the aspiration of consumers for high-quality products.
One interesting aspect of the cosmetics market is the relatively high spend on advertising by the largest players, relative to the largest players in the luxury goods market. The average spend on adverting as a % of total sales stands at 6.6% for luxury companies and 25.1% for cosmetic companies. According to EY’s analysis, advertising costs remain a major topic within the operational units of companies whose focus is on top-line growth and brand awareness sustainability, with a significant correlation between advertising expense and mass-market positioning. A previous analysis from EY revealed that the global luxury goods market
is valued at €224 billion.
Neville Prior 25 October 2015 04:19:54 PM
The business advantages of full UK membership of the European Union (EU) outweighed the disadvantages, according to a new report from employers’ organisation, the CBI. The trade group said that “most” of its 190,000 members wanted the UK to remain in a reformed EU, although they also wanted it to “work better”.
John Cridland, the CBI’s director-general, said: “The Single Market has been the solid foundation of our economic success in recent decades, giving us direct access to eight times more consumers than in the UK alone and ensuring we can go toe-to-toe with larger economies on major trade deals, creating jobs and economic growth here in the UK. “While there are many benefits to EU membership, we should not be blind to the downsides and recognise the EU, like any big institution has its faults and needs to do better.” Cridland said the burden of regulation on smaller firms in particular still needed tackling, even if some progress was being made. “And the UK must push for reform to make the whole of the EU more competitive in the global economy and deliver a Single Market fit for the 21st century,” he added.
The CBI’s report highlighted benefits of EU membership including one set of rules for UK firms, not 28; access to skills; more international investment, and lower prices and more choice for customers.
Neville Prior 25 October 2015 04:07:19 PM
Year-on-year car production in the UK rose by 15.5% last month, with both the home market and exports seeing double-digit gains, according to the Society of Motor Manufacturers and Traders (SMMT). The SMMT said UK car production had posted “healthy growth” in September, while year-to-date volumes were up 3.3%. Production for the domestic market came in at 20.1%, with new car exports up 13.9%. The SMMT recently published a report which argued that UK car production could hit record annual levels by 2020. Speaking about the latest figures, Mike Hawes, the SMMT’s chief executive, said: “After the regular summer break, manufacturing plants were back in full swing in September and the gains made by the UK’s car makers are positive. “Particularly encouraging is the recent upturn in exports, which are higher than they were in 2014, reflecting growth in key overseas markets such as the rest of Europe. “The UK’s recent manufacturing successes are hard won and the sector will need ongoing investment and innovation to maintain global automotive competitiveness.”
Neville Prior 23 October 2015 07:51:52 PM
BASF plans to invest at least 6 billion euros in its main production site in Ludwigshafen, Germany, over the next five years, the world's largest chemicals
maker by sales said.
Since it was founded in 1865, the site has grown to around 2,000 buildings covering an area of more than 10 square kilometres, employing around 36,000 of BASF's overall 113,000 workers.
BASF said it had signed a new agreement with workers' representatives that included the planned investments
through 2020 as well as a commitment by the company to forgo forced redundancies in Ludwigshafen
through the end of 2020.
In return, BASF said it expected workers to remain flexible, especially in areas where capacity utilisation and order levels can fluctuate, to allow for forward-looking investments and active portfolio management.
Neville Prior 12 October 2015 04:03:31 PM
Cornelius is celebrating 80 years in business. With expertise in distributing chemicals and ingredients for the Health and Nutrition, Care Products and Industrial markets, the company has flourished since 1935. Having built up an extensive portfolio of speciality solutions backed by a network of warehousing and strong working relationships with suppliers, we pride ourselves on providing security and reliability of supply with great customer service. As a result, Cornelius is now established as a major distribution business in the UK, France, Poland and Russia. Today Cornelius lists leading global consumer brands among our customers and we have global sourcing offices in China and India to tap into the vast growth potential in those regions. We are a vibrant and energetic business with a unique culture and a strong and proven commitment to sustainable and ethical working practices. Cornelius in 2015 enjoys sales of around £65 million and employs 150 people, shipping chemicals to customers in over 30 countries. We have also seen international sales increase by 20% in the last two years. Cornelius CEO Dr. Neville Prior says: “I’m extremely proud of what Cornelius has achieved over the past 80 years. We have grown from a small trading company into a major European presence in the speciality chemical distribution market and that’s down to the hard work and efforts of Team Cornelius. “We have some great people working for us and I am very excited about what the future holds for us. We are growing our core businesses rapidly as well as investing in new countries, adjacent markets and our specialty manufacturing business. As many have heard me say, we have an enviable past and an even more exciting future.”
Neville Prior 5 October 2015 01:33:15 PM
Speciality chemicals distributor and manufacturer, Cornelius Group, has become a member of the Institute of Customer Service (ICS). ICS is an independent professional body for customer service, which aims to promote the benefits of excellent customer service to organisations and their employees. Membership gives Cornelius access to the Institute’s breakthrough research, benchmarking and measurement tools, with opportunities to share with and learn from other members within the extensive network. Cornelius employees will also be able to take advantage of specially developed training designed to maximise service delivery performance. The move comes just a month after the rebrand of the customer service function to Customer Care Team at Cornelius, which aims to further improve the service experience for its principals and customers alike. The changes included a restructuring of the team and the implementation of a new live chat feature on its newly launched website, to connect customers directly with a member of the company’s Customer Care Team. Managing Director of Cornelius, Darren Spiby says, “The membership underscored the company’s pledge to consistently anticipate and adapt to evolving client requirements. “At Cornelius we have a clear mission to continually deliver more value and outstanding customer care. Our relationship with the Institute will help us to deliver on this by giving us access to customer service experts as well as enable us to benchmark with other proactive industries. All our practices will become more client focused and employees will have the opportunity to undertake specialist client training that is recognised and accredited by the Institute. We’re very excited about this step in our strategy.”
Neville Prior 2 October 2015 11:57:08 AM
EcoVadis, the first collaborative platform providing sustainability performance ratings and improvement tools for supply chains, and Together for Sustainability (TfS), the chemical industry sustainability initiative, announce the renewal of their partnership in order to further advance sustainable practices in the supply chain of the chemical industry.
TfS membership, which includes AkzoNobel, Bayer, Eastman, Merck and BASF, has more than doubled since its founding four years ago. In addition to the six founding members, TfS added members from Europe and from the United States and intends to continuously grow globally. The member companies of TfS join forces to assess and audit their suppliers and share the results. The benefits are on both sides: suppliers receive one request from TfS instead of multiple from each individual customer and TfS members share the results. Through the use of those synergies more efforts can be directed into improvement measures. EcoVadis is the cooperation partner of TfS for assessments and the assessment program has expanded to have significant impact, with a total of more than 7,800 supplier companies engaged to date. The TFS assessment program is supported by the EcoVadis cloud collaboration platform and CSR rating service, which is backed by a global team of 250 people and provides performance improvement tools for suppliers across 100 countries.
"TfS is pleased to extend this partnership with EcoVadis, and we look forward to building on the success we have achieved thus far with the assessment program," said Rudiger Eberhard, President of TfS and Chief Procurement Officer of Evonik Industries. "With more than 70% of suppliers improving their scores upon second evaluation, this has given us great confidence in the effectiveness of EcoVadis rating and collaboration system."
"In only 4 years TfS has become the benchmark for what industry collaboration for Sustainable Supply Chain should be" added EcoVadis co-CEO and co-Founder Pierre-François Thaler. "They have scaled and driven impressive results through a clear vision and very strong commitments of Chief Procurement Officers of the member companies. We are very proud to be continuing with TfS' pioneering effort to drive improvements of CSR practices in the Chemical supply chains".
TfS AISBL is a joint initiative of chemical companies for sustainable supply chains. It was founded in 2011, to develop and implement a global program to assess, audit and improve sustainability practices within the supply chains of the chemical industry. Currently it has 16 member companies worldwide and intends to grow globally. http://www.tfs-initiative.com/
Neville Prior 2 October 2015 08:51:05 AM
The growth plans of more than one in four of the UK’s SME manufacturers are being jeopardised by a shortage of skilled people, a new manufacturing study from accountancy and business advisory group MHA, has revealed. The respondents were from a variety of sub-sectors within manufacturing and engineering, including aerospace, automotive, agriculture, biotechnology, chemical, construction, electrical and electronic, renewables and transport. The survey, supported by Lloyds Bank Commercial Banking, sampled 400 predominantly SME manufacturing and engineering businesses and found that recruitment issues were acting as a significant barrier to expansion for 28% of companies.
Other headline statistics were that 55% expected to increase headcount in the next year, with 56% taking on apprentices or trainees, and there was a 15% increase in the number of SME manufacturers trading with the Eurozone to 98%, with smaller increases in the numbers exporting to North America (up 2% to 59%) and Asia (up 4% to 50%, excluding China), as businesses sought to expand their markets.
Chris Coopey, head of manufacturing at MHA, said: “This year almost 30% of businesses indicated that ‘the skills gap’ was a real barrier to growth. Survey data bears out the anecdotal evidence from countless businesses in the sector, so where will the next generation of skilled engineers come from?"
“Most respondents also expected to see a rise in the cost of production fuelled amongst other things by a rising wages bill."
“The fact that many businesses do not feel able to pass these costs on to their buyers is perhaps also reflected in the falling level of confidence. A real positive from the survey was the large number of businesses who are looking to drive efficiencies into their existing processes."
“Along with automation, adoption of lean techniques seems to be gathering pace. Whilst this may be to counter negatives such as rising production costs and recruitment difficulties, efficiency improvements should drive up productivity levels.”
Neville Prior 2 October 2015 08:48:30 AM
BASF boss Dr Kurt Bock said the chemicals giant aimed to post sales increases in excess of 3.9% in the coming years and wanted to grow pre-tax earnings “well above” this figure in the same period. Speaking during an investor event in Germany, Bock said a changing world had prompted the group to marginally lower its expectations for the global economy. Major markets had not grown as fast as BASF had expected when it launched its ‘We Create Chemistry’ strategy four years ago, Bock said. Meanwhile the falling price of oil and what he called “geopolitics” had contributed to higher volatility. Consequently BASF had made some small downward adjustments to earlier forecasts for global gross domestic product – down from 3.2% to 3% – while it had lowered its forecast for growth in industrial production from 3.7% to 3.5%.
Growth in chemical production around the world was expected to be 3.9%, down from 4%. Emerging markets would remain the primary global growth drivers, Bock said, while western Europe would "get back on the growth path", albeit at a low level. Competitive feedstock costs and an expanding economy would drive chemical production growth in North America, he added.
Bock said BASF aimed to grow sales “slightly faster than global chemical production, and earnings before interest tax, depreciation and amortisation (Ebitda) well above global chemical production”. Last year the group posted sales of €74.3bn (£54.8bn) and Ebitda of €11bn (£8.1bn). To achieve these goals Bock said it planned to generate €10bn (£7.4bn) of sales with products that had been on the market since 2010, and maintain research and development spending at around 3% of sales, excluding oil and gas. He added it would also bring down the level of its capital investment to slightly more than that of its depreciation charge in recent years. In 2014 BASF recorded a depreciation figure of €3.4bn (£2.5bn). BASF would add new specialty and solutions businesses through what it called its “innovation pipeline” as well as acquisitions, while selling non-strategic operations. As well as upping the proportion of its products that made a “substantial sustainability contribution in the value chain” BASF would also launch an operational excellence programme called Drive Efficiency, running from next year until 2018, by which time it would hoped to have added up to €1bn (£740m) to the top line.
BASF’s finance chief Dr Hans-Ulrich Engel told investors the group aimed to earn what he called “a significant return” on its cost of capital and would continue a progressive dividend policy. Last year BASF paid out a dividend of €2.80 (£2.06) per share, up nearly 4% on the previous year.