January 2011

The flight is cheaper than a single piece of paper…

Published on: 31 Jan 2011

Ryanair is Europe’s largest low cost airline.

Their strategy is very much based on cost leadership and is a classic “no frills” approach on the strategy clock model.

In simple terms you don’t pay a lot for the service but at the same time you don’t get a lot. This approach can be very successful when comparing for example to another extreme where you pay a lot but don’t get a lot!

It released its results for the final quarter of 2010 today.

Air traffic control strikes and the bad weather in December were blamed for the Euro 10 million loss that was reported although the company is still confident of achieving full year profits of between Euro 380 million and Euro 400 million for their year ended 31 March 2011.

The average fare during the last quarter was reported as being Euro 34 and this will get you the flight and that’s about it. Extras which require additional payment include taking hold luggage, payment by credit card and seat allocation.

Their whole ethos is to minimise their costs. For example, they have a pretty aggressive policy when it comes to boarding passes.

Their terms and conditions state that passengers must print out their boarding pass at home. If they fail to do so and need one printed out at the airport then Ryanair will charge the passenger £40 to print the one piece of paper.

£40 to print a single piece of paper is pretty high but Ryanair argue that if passengers print out the boarding pass at home then it saves the cost of employing check in staff at the airport.

They have reported that people who forget to print out the boarding pass and are subsequently charged £40 remember to print it the next time.

Of course, it could be that if they’ve been charged £40 for printing one piece of paper then “next time” may well be with another airline as opposed to Ryanair.

You can raise your profile on LinkedIn but will LinkedIn raise $175 million?

Published on: 28 Jan 2011

The professional networking site LinkedIn yesterday announced plans to raise up to $175 million (£110 million) by way of a public offering.

Many of you may well be members of LinkedIn and in terms of registered users it has been very successful since it started back in 2002.

Financial information about the company though has historically been difficult to obtain as such information was kept away from the public domain.

The IPO document released yesterday however provides some interesting figures.

For example, LinkedIn gains a new member every second and now has more than 90 million total members worldwide.

Although the majority of LinkedIn users are subscribers that sign up for the free version the company does generate significant income. It was able to double its 2009 revenues to $161 million in the first nine months of 2010. The $161 million can be broken down as follows:

  • Hiring solutions (job listings): $66 million (41% of revenue)
  • Marketing solutions (advertising): $51 million (32% of revenue)
  • Premium subscriptions: $44 million (27% of revenue)

2010 was the first year that LinkedIn was profitable with a net income after tax of $10 million.

Cash at hand as at 30 September 2010 was $90 million whilst total assets were $197 million.

The IPO document also has to provide details of shareholders with more than a 5% stake.

The founder and chairman, Reid Hoffman owns 21.4% of the company together with his wife whilst 3 venture capital firms own approximately 39% between them.

The shareholders should do very well out of the IPO and indeed Mr Hoffman is no stranger to successful e-businesses having previously been an executive at PayPal.

If you’ve got a relaxed day at the office and a love of detail then the full document submitted to the US Securities and Exchange Commission can be found here.

At least it will make it easier for James Bond to park…

Published on: 26 Jan 2011

The supercar manufacturer Aston Martin is associated with top end cars such as the Aston Martin DBS (shown left) which retails at £179,000. James Bond is also regularly seen saving the world in one of their cars.

So it’s come as a bit of a surprise to some people that in May of this year they are launching a small city car or “bespoke luxury commuter car” as they refer to it.

The launch version of the new Aston Cygnet (shown below) will cost £39,995 and whilst this is significantly less than the £179,000 for the DBS it is £27,750 more than the Toyota IQ that the model is based on.

So, is this a clever move by Aston Martin to identify a niche segment of the market that will pay extra for the luxury add-ons that are on the car such as a bespoke five-piece luggage set comprising a glovebox bag, removable door pocket bag, holdall, garment bag and a collapsible tote bag?

Or are their other possible reasons?

Some would argue that it’s a nice use of segmentation whereby the brand is being extended to high net worth individuals that need a luxury city runabout that is easier to park than a traditional Aston Martin.

It could also be targeted at the traditional male executive purchasers of new full size Aston Martins who could be encouraged to buy an Aston Cygnet for their wife or girlfriend (or both).

There is also the EU Commission proposal that car manufacturers’ car fleets should average below a certain CO2 emission rate to avoid penalties.

Manufacturers such as Honda and Renault which typically produce smaller more fuel efficient cars can achieve these limits. Aston Martin however with their high performance, and as a result less fuel efficient cars, will not meet the limits.

Is this a sign of things to come?

Will we see the Rolls Royce Mini or the Ferrari Cinquecento on our streets soon…

Florida, the “sunshine state”. Or should that be the “frozen orange state”?

Published on: 24 Jan 2011

One of my favourite drinks is orange juice. Especially if some ice and vodka have been mixed with it.

There’s a high chance though that the price of my drink will increase this year.

The orange juice commodity market on the ICE Futures US exchange is pretty volatile at the moment. The reason?

The Florida orange crop was badly hit last month by cold weather.

Florida is the world’s second largest producer of oranges and temperatures last month were the coldest December temperatures on record in Florida.

The end result was that the crops were badly damaged. With the supply of oranges being reduced and the demand staying consistent, basic economic theory means that prices will go up.

Indeed they already have. Orange juice prices are currently near a 4-year high and the expectation is that the prices will increase further.

So this will mean that when you buy your fresh oranges at the market they will cost more.

It’s not just the fresh fruit that will be impacted though. Coca-Cola have announced plans to increase the prices of their Simply Juice drinks by between 4% and 8% this year.

Luckily the price of vodka and ice has been unaffected by the cold weather.

I’m sorry madam but it’s not in stock. Just press that button though and…

Published on: 21 Jan 2011

Luxury fashion house Burberry has just announced a 36% increase in retail sales in the final quarter of last year.

Their shops in Asia Pacific, the Americas and Europe all reported double digit sales growth.

This is pretty impressive given that the economy is still facing turbulent times. So what’s behind the success?

One of the main drivers of this growth is China and in particular the growth in the Chinese luxury market.

Last year, Burberry acquired 50 stores in China from their Chinese franchise partner and seem to have been making the most of having them fully back “within the family”.

One of the key strategic issues facing fashion retailers is “merchandising”. In other words, making sure that the right clothes are in the stores at the right time.

There is always a balance between having money tied up in high inventory levels versus ensuring that shoppers have the item that they want to buy in stock.

Burberry reportedly have had some issues in the past when they were operating with very lean levels of inventory in some of their shops.

This meant that if people went shopping at a Burberry store and saw something they liked but found it wasn’t in stock then the chances were that they wouldn’t come back another day to buy it.

The end result was a lost sale.

The company seems to have better control of their inventory levels now and they have also piloted a new digital store format in Beijing.

If the item isn’t in stock in the shop then the customer can quickly get access to an in-store iPad and purchase the item online for home delivery. A relatively simple but effective way of trying to make sure the customer doesn’t walk out of the shop without making a purchase.

You just can’t be a real banker if you like pickled onions….

Published on: 19 Jan 2011

It sounds like the start of a joke:

What’s got onion breath, dirty glasses and a scruffy hair cut?

Well, if the UBS dress code has anything to do with it then it certainly isn’t a UBS banker.

Whilst being professional in both approach and dress style is expected for employees of banks the Swiss bank UBS has got a 44 page dress code which advises employees how they should dress.

It has also attracted a fair amount of mocking on the internet.

They have recently announced however that they will be revising their dress code but some of the highlights of the existing advice in the current code include:

–    Types of perfume and make up that female employees should wear (black nail varnish should be avoided);

–    Men (and I guess women as well for that matter) should avoid unruly beards;

–    Glasses should be kept clean (presumably this will help when reading the dress code)

–    Women are encouraged to wear skin coloured underwear.

It also advises against eating garlic and onions.

They have said however that certain parts of their dress code will stay including the requirement for men to wear a dark suit, white shirt and a red tie.

In summary therefore if you’re thinking of applying for a job as a banker and have a liking for bright green ties, leopard print underwear and just love the taste of pickled onions then maybe UBS isn’t the bank for you.

We wish Steve Jobs a speedy recovery but should we know from what?

Published on: 17 Jan 2011

Steve Jobs is the CEO of Apple, one of the largest companies in the world with a market cap of in excess of $300 billion.

He has been credited with turning the company around to become the huge success it is today. He is also one of the most charismatic leaders in the market.

Unfortunately he is also ill.

In an email to Apple employees today he announced that he would be taking medical leave with immediate effect and handing over the day to day running of the business.

His message said that “my family and I would deeply appreciate respect for our privacy.”

Whilst we all hope that Mr Jobs gets well soon it does raise an interesting corporate governance debate.

Namely, should the CEO be able to keep his illness private or should shareholders be told of any matters which would influence their decision to buy or sell their shares.

The illness of such a pivotal person in Apple as Steve Jobs arguably requires disclose to the shareholders.

Today’s announcement comes 2 years after Mr Jobs took a 6-month break for a medical problem that at the time of the break was undisclosed. It subsequently transpired that he had had a liver transplant.

Following the announcement Apple’s shares fell 8% in Frankfurt. The US markets, which are currently closed for a holiday, will reopen tomorrow.

A classic corporate governance debate – the right of a CEO to medical privacy vs. the right of shareholders to know whether a charismatic leader will be likely to continue working for the company that they have invested in.

We wish Mr Jobs a speedy recovery.

KPMG have kindly offered to pay the fees…

Published on: 14 Jan 2011

The UK government has recently announced an increase in university tuition fees.

This raised a number of concerns such as the risk that some of the poorer students would be unable to attend university due to not being able to afford the fees.

Numerous student protests ensued but the fee increase proposals were implemented and university fees will rise in 2012 to up to £9,000 per year.

Accountancy firm KPMG recruits in the region of 400 new trainees each year in the UK alone.

They have just announced an innovative new scheme for supporting school leavers that want a career in accountancy and are offering to pay university tuition fees for some of their annual intake.

From this autumn, KPMG will offer a 6 year programme to 75 school leavers which will include 4 years of study at Durham University. During this time KPMG will pay the university fees for the students as well as a salary of up to £20,000 pa.

If all goes well with their exams, at the end of the programme the students will have both a degree and a professional accounting qualification.

Oliver Tant, UK Head of Audit at KPMG, said:  “We are really excited about this scheme which we think is genuinely ground-breaking and innovative.  For us, one of the key things is to ensure fair access to the profession by ensuring the greatest number of young people possible go to university – and also have the potential to train as an accountant.  We need an accountancy profession that is as diverse and as open as it can be.”

I think that this is a great idea by KPMG.

A friend of mine recently mentioned that the kindergarten fees for her 4 year old daughter have just increased significantly. Could we see a move in the future by one of the accounting firms to sign up 4 year olds for a career in accounting….

Advertising on the move and all for a good cause.

Published on: 12 Jan 2011

There are certain things in this world that really should be readily available no matter where you live.

School education for children for example is one such item.

In some countries however it is a sad fact of life that children often have to walk many kilometres to their nearest school. This can understandably result in there being challenges in ensuring attendance at classes.

The advertising industry can be a very creative place and in Africa the  advertising industry is currently growing at an estimated 20% per annum.

French company Instinct’s Socially Intelligent Marketing programme aims to combine this growing advertising market in Ghana with providing a solution to the school transport problem.

Instinct has launched “TriKademiK”.

In effect this is a mobile advertising platform that combines a billboard with a tricycle that can carry up to 6 children to school. When not in use on the school-run the tricycle can be converted to transport other goods for the local community.

The initial pilot versions of TriKademiK were sponsored by mobile phone company Zain Ghana and drinks company Voltic (part of the SAB Miller group of companies).

Instinct’s aim is to roll out the programme to over 1,000 tricycles which can transport 7,000 children to school on a daily basis.

All in all an impressive and creative use of an advertising platform for a very good cause.

The ExP Group